ANNUAL REPORT
to Shareholders2022
Saul Centers, Inc. is a self-managed, self-
administered equity REIT headquartered in
Bethesda, Maryland, which currently operates and
manages a real estate portfolio of 61 properties
that includes (a) 50 community and neighborhood
shopping centers and seven mixed-use properties
with approximately 9.8 million square feet of
leasable area and (b) four land and development
properties. Over 85% of Saul Centers’ property
operating income is generated by properties in
the metropolitan Washington, DC/Baltimore area.
THE WAYCROFT, ARLINGTON, VA
TOTAL REVENUE(a)
(In millions)
2022 | $245.9
2021 | $239.2
2020 | $225.2
2019 | $231.5
2018 | $227.2
NET INCOME
Available to Common Stockholders
(In millions)
2022 | $39.0
2021 | $37.2
2020 | $29.2
2019 | $36.3
2018 | $36.0
FUNDS FROM OPERATIONS
Available to Common Stockholders
and Noncontrolling Interests(b)
(In millions)
2022 | $103.2
2021 | $100.7
2020 | $90.0
2019 | $95.1
2018 | $93.8
(a) Certain reclassifications have been made to prior years to conform to the
presentation used for year ended December 31, 2022.
(b) Funds From Operations (FFO) is a non-GAAP financial measure.
See page 48 of the 10-K for a definition of FFO and reconciliation to Net Income.
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM
MESSAGE to our Shareholders PORTFOLIO COMPOSITION
BASED ON 2022 PROPERTY OPERATING INCOME1
74.5%
Shopping Centers
25.5%
Mixed-Use
86.4%
Metropolitan
Washington, DC/
Baltimore area
13.6%
Rest of U.S.
(1) Property Operating Income equals total property revenue (net of provision for credit losses) less the sum of property operating expenses and real estate taxes.
Summary Financial Data(a)
2022
Year ended December 31,
2020
2019
2021
2018
Total Revenue
$ 245,860,000
$ 239,225,000
$ 225,207,000
$ 231,525,000
$ 227,219,000
Net Income Available to
Common Stockholders
FFO Available to Common Stockholders
and Noncontrolling Interests
Weighted Average Common
Stock Outstanding (Diluted)
Weighted Average Common Stock
and Units Outstanding (Diluted)
Net Income Per Share Available to
Common Stockholders (Diluted)
FFO Per Share Available to Common
Stockholders and Noncontrolling
Interests (Diluted)
Common Dividend as a Percentage
of FFO
Interest Expense Coverage(b)
Property Data
Number of Operating Properties(c)
Total Portfolio Square Feet
Shopping Center Square Feet
Mixed-Use Square Feet
Average Percentage Leased(d)
$
39,000,000
$
37,195,000
$
29,188,000
$
36,253,000
$
35,964,000
$ 103,167,000
$ 100,727,000
$
89,970,000
$
95,059,000
$
93,821,000
$
$
23,972,000
23,662,000
23,357,000
23,053,000
22,425,000
33,972,000
33,098,000
31,267,000
30,913,000
30,156,000
1
1.63
$
1.57
$
1.25
$
1.57
$
1.60
3.04
$
3.04
$
2.88
$
3.08
$
3.11
77%
3.77x
71%
3.60x
74%
3.28x
69%
3.77x
66%
3.53x
57
9,822,000
7,877,000
1,945,000
93%
57
9,819,000
7,874,000
1,945,000
92%
57
9,822,000
7,877,000
1,945,000
92%
56
9,335,000
7,855,000
1,480,000
95%
56
9,300,000
7,750,000
1,550,000
95%
(a) Certain reclassifications have been made to prior years to conform to the presentation used for year ended December 31, 2022.
(b) Interest expense coverage equals (i) operating income before the sum of interest expense and amortization of deferred debt costs, predevelopment expenses,
acquisition related costs, and depreciation and amortization of deferred leasing costs divided by (ii) interest expense.
(c) Excludes land and development parcels (Ashland Square Phase ll, New Market, and The Waycroft in 2018, and Ashland Square Phase II, New Market, The
Waycroft, and Hampden House in 2019, and Ashland Square Phase II, New Market, and Hampden House in 2020, and Ashland Square Phase II, New Market,
Hampden House, and Twinbrook Quarter in 2021 and 2022). Hampden House was acquired September 2018.
(d) Average percentage leased includes commercial space only.
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM
MESSAGE
to our Shareholders
The past year was marked by
the
strengthening of our real estate portfolio
despite the headwinds of increasing interest
rates and capital market volatility. We
remain committed to delivering value to our
shareholders through strategic investments
and operational excellence.
We achieved notable success in enhancing
the performance of our properties. The
leasing percentage of our shopping centers
increased 1.3%, to 94.7% as of December
31, 2022, from 93.4% as of December 31,
2021. During the year, our office mixed-
use leasing percentage increased slightly, to
82.0% from 81.6%. Our residential properties
were 97.2% leased as of December 31, 2022,
compared to 97.1% at the end of 2021. As
of March 16, 2023, collection of tenant rent
owed for 2022 totaled 99%. Same-property
revenues increased to $245.9 million from
$239.2 million, and same-property operating
income increased to $181.3 million from
$177.6 million, or 2.1%. In short, our real
estate portfolio continued to improve in 2022.
Our development projects are progressing on
schedule. Early in 2023, we poured concrete
for the final above-grade residential level
at Twinbrook Quarter Phase I in Rockville,
Maryland. At Hampden House in Bethesda,
Maryland, we have successfully completed
excavation and are continuing below-grade
construction.
Interest rates increased substantially during
2022 and early 2023, and elevated interest
rates are expected to continue to affect
earnings in 2023. We are not immune from
the increased borrowing cost that is a result
of higher interest rates. During the past year,
however, we accessed the capital markets
and executed several transactions to support
a long-term, stable cost of debt and to
provide additional liquidity to support our
active developments.
2
2
TWINBROOK QUARTER, ROCKVILLE, MD
BROADLANDS VILLAGE, ASHBURN, VA
LEESBURG PIKE, BAILEYS CROSSROADS, VA
MESSAGE to our ShareholdersSAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM BROADLANDS VILLAGE, ASHBURN, VA
During 2023, we expect to begin drawing on
our $145.0 million construction-to-permanent
loan, which closed in November 2021, and
which will finance a portion of the development
cost of Twinbrook Quarter Phase I. This 20-year
loan includes a 5-year construction period and
a 15-year permanent loan, with a fixed interest
rate of 3.83% during both the construction and
permanent terms.
In February 2022, we closed on a $133.0 million
construction-to-permanent
loan which will
fund a portion of the development cost of
Hampden House. This loan provides us four
years to complete construction followed by a
14-year permanent loan, with a fixed interest
rate of 3.90% during both the construction and
permanent terms. We expect to begin drawing
on this loan in early 2024.
We also refinanced the mortgages on four
shopping centers in 2022. In August, we closed
on a $25.3 million, 15-year mortgage secured
by Village Center and a $31.5 million, 7-year
mortgage secured by Great Falls Center. These
mortgages have fixed interest rates of 4.14% and
3.91%, respectively. In September, we refinanced
the mortgage loans at Beacon Center and Seven
Corners Center with a combined $143.0 million,
15-year fixed-rate mortgage at 5.05%. The net
proceeds after repayments from all four mortgage
refinances were used to reduce the outstanding
balance of our bank revolving credit facility.
Also in August, we entered into two floating-to-
fixed interest rate swaps totaling $100.0 million.
These swaps effectively fix the all-in rate at
4.39% on $100.0 million of our variable rate
debt. One $50.0 million swap is for five years
and matures in 2027, and the other $50.0 million
swap is for eight years and matures in 2030. As a
result of these refinance and interest rate swap
transactions, approximately 86.8% of our debt
was fixed-rate as of December 31, 2022.
3
CORE PROPERTY
FUNDAMENTALS
SHOPPING CENTERS
Shopping centers are the core of our real estate
portfolio. Online shopping has continued to add
convenient shopping options for consumers.
The resilience of our shopping centers, however,
demonstrates that online ordering complements,
but does not supplant, the in-person shopping
or dining experience. Further, tight margins in
the grocery industry favor in-person shopping
over the higher cost of last-mile grocery delivery.
Our 50 retail centers, which are primarily grocery-
anchored, comprised 74.5% of total property
operating income in 2022.
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM THRUWAY, WINSTON-SALEM, NC
4
Our neighborhood shopping center portfolio
performance continued to improve in 2022. Our
leased percentage improved to 94.7% at the end
of 2022 from 93.4% at the end of 2021. Included in
our leased area is approximately 226,000 square
feet, representing $4.9 million of additional
annualized future base rent. Shopping center
same-property operating income increased to
$135.2 million in 2022 from $133.9 million in
2021, a 0.9% increase. Approximately 1.3 million
square feet of expiring leases at an average
rental rate of $21.37 per square foot were
renewed or re-leased at an average of $22.50 per
square foot, a 5.3% increase.
arise, we
opportunities
As
replace
underperforming tenants and add new retailers
with stronger tenant credit that generate
increased consumer traffic.
For example, in 2022 we leased 2,800 square
feet to Apple Federal Credit Union at Ashbrook
Marketplace in Loudoun County, Virginia, 9,200
square feet to Dollar Tree at Leesburg Pike in
Fairfax County, Virginia, 19,600 square feet to
Grocery Outlet at Southdale in Anne Arundel
County, Maryland, and 30,000 square feet to
O2 Fitness and 7,600 square feet to Sephora
at Thruway in Winston-Salem, North Carolina.
In total, we executed 304 new leases, renewed
leases, and lease options for 1,274,000 square
feet in 2022.
With many of the larger, previously vacant spaces
now under lease, in 2023 our retail team is
focused on leasing the remaining available small
shop spaces in the portfolio. Further, we closely
manage tenant buildout timelines, including the
challenge of supply chain disruptions, in order
to minimize the leased-to-opening period and
accelerate commencement of cash flow. We
continue to benefit from well-staggered lease
expirations within our shopping center portfolio,
with only 11.5% of leases, as measured by annual
base rent, expiring in 2023.
MESSAGE to our ShareholdersSAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM HAMPDEN HOUSE, BETHESDA, MD
THE WAYCROFT, ARLINGTON, VA
OFFICE
RESIDENTIAL
Although we have seen a general trend of
employees returning to the office for at least part
of the work week, the office sector continues to
present its own unique set of challenges. All
our office mixed-use properties are located in
the greater Washington, D.C. area and include
Avenel Business Park, Clarendon Center North
and South, 601 Pennsylvania Avenue and
Washington Square.
Our office mixed-use
leasing percentage
increased slightly to 82.0% as of December
31, 2022 from 81.6% as of December 31, 2021.
Same-property operating income from these
properties remained essentially flat at $24.4
million in 2022, down slightly from $24.6 million
in 2021. These results reflect our office leasing
team’s success at defending our existing tenant
base while winning new tenants where possible.
For the year, approximately 87,000 square feet
of expiring leases at an average rental rate
of $29.66 per square foot were renewed or
re-leased at an average of $28.04 per square
foot, a 5.5% decrease.
We continue to actively work to renew existing
tenants and pursue tenants either new to our
market or willing to relocate within the market.
In addition, we continue to pursue a measured
program constructing and leasing speculative
suites to tenants requiring less than 5,000 square
feet. Only 8.9% of leases at our office mixed-use
properties, as measured by annual base rent, will
expire in 2023.
Our
to
residential properties continued
demonstrate strong performance in 2022. The
Waycroft, our 491-unit apartment house located
in Ballston, Virginia, continued to stabilize in
2022, driving growth in our residential portfolio.
Including The Waycroft, Lyon Place in Clarendon,
Virginia, and Park Van Ness in Washington,
D.C.,
residential same-property operating
income grew to $18.9 million in 2022 from $16.5
million in 2021, a 14.5% increase. Our residential
properties contributed 10.4% of same-property
operating income in 2022, up from 9.3% in 2021.
Our residential units were 97.2% leased as of
December 31, 2022.
We look forward to the additions of Twinbrook
Quarter Phase I and Hampden House to our
in 2024 and 2025,
residential portfolio
respectively.
investment
residential
Our
continues to provide an important source of
growth and diversification of income for our
shareholders.
DEVELOPMENT
HIGHLIGHTS
During the year, we continued our construction
of Twinbrook Quarter Phase I and Hampden
House. Twinbrook Quarter Phase I is the first
phase of our 18-acre development in Rockville,
Maryland, located proximate to the Twinbrook
5
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM Metrorail Station on the Red Line. To finance a
portion of the development costs of Twinbrook
Quarter Phase I, we closed on a $145.0 million
construction-to-permanent loan in 2021. Phase
I will include 450 apartments, an 80,000 square
foot Wegmans, and 25,000 square feet of small
shop retail. We also have entitlements to build
a 230,000 square foot office tower as part of
Phase I in the future. Phase I is an important
component to the success of our long-term
plans at Twinbrook Quarter and includes the
creation of Festival Street to the north of the
block, and the extension of Chapman Avenue
to the east of the block. Delivery of Phase I is
scheduled to occur in 2024.
We began construction at Hampden House
during the year. Located in downtown Bethesda,
Maryland, Hampden House will include 366
apartments and 10,100 square feet of ground
floor retail. The development is located adjacent
to the Metrorail Red Line and the new Purple Line,
which is under construction. To finance a portion
of the development costs of Hampden House,
we closed on a $133.0 million construction-
to-permanent loan in the first quarter of 2022.
Excavation
is complete and below-grade
construction is ongoing. Delivery of Hampden
House is scheduled to occur in 2025.
Our existing
land holdings at Twinbrook
Quarter in Rockville and White Flint in North
Bethesda, Maryland provide potential future
opportunities for new ground-up development.
We also continue to drive organic growth at
our neighborhood shopping centers through
the addition of pad development sites, where
appropriate. Looking ahead, we currently have
seven future pad sites either under lease or in
various stages of negotiation.
FINANCIAL
RESULTS
Total revenue for the year ended December
31, 2022 increased 2.8% to $245.9 million from
$239.2 million for the year ended December
31, 2021. During the same period, net income
increased 6.1% to $65.4 million from $61.6
million. Year over year, total portfolio same-
property revenue increased 2.8% and total
increased
same-property operating
2.1%. Shopping center same-property operating
income increased 0.9% and mixed-use same-
property operating income increased 5.7%.
income
6
CLARENDON CENTER, ARLINGTON, VA
MESSAGE to our ShareholdersSAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM ASHBROOK MARKETPLACE, ASHBURN, VA
ASHBROOK MARKETPLACE, ASHBURN, VA
Funds From Operations available to common
stockholders and noncontrolling
interests
totaled $103.2 million ($3.04 per diluted share)
in 2022 compared to $100.7 million ($3.04 per
diluted share) in 2021.
We maintain a disciplined approach to our
liquidity, debt maturities, and leverage relative to
the value of our assets. As of December 31, 2022,
liquidity included $225.4 million in combined
cash and available borrowing capacity under our
bank revolving credit facility, compared to $234.4
million as of December 31, 2021. We renewed
our $525 million bank credit facility in August
2021. The $425 million revolving line within the
facility has an initial maturity of August 2025.
We ended 2022 with approximately $1.2 billion
of total debt outstanding, $1.07 billion of which
was fixed-rate debt and the remaining $164.0
million was variable-rate debt. The weighted
average maturity of our well-laddered debt is 8.0
years as of December 31, 2022.
Only $9.2 million of debt matures in 2023.
We believe that the combination of our credit
facility, proceeds from our $145.0 million and
$133.0 million
construction-to-permanent
loans, proceeds from refinancing existing loans,
from our dividend reinvestment
proceeds
plan, and our operating cash flow will provide
adequate liquidity to finance our development
pipeline over the coming years.
CONCLUSION
In summary, our real estate portfolio continued to
strengthen in 2022, characterized by improvement
and resilience despite a tightening economic
environment. The increase in interest rates and
capital market volatility presented challenges
that required us to remain agile and adapt
to changing market conditions. In response,
we executed several transactions to support a
long-term, stable cost of debt. We also made
progress on our developments, with Twinbrook
Quarter Phase I and Hampden House continuing
on schedule. We remain well positioned for
continued long-term growth and committed to
delivering value to our shareholders.
For the Board,
7
B. Francis Saul II
March 30, 2023
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM PORTFOLIO PROPERTIES
Saul Centers’ portfolio properties are
located in Virginia, Maryland, Washington,
DC, North Carolina, Delaware, Florida,
Georgia, New Jersey and Oklahoma.
Properties in the metropolitan Washington,
DC/ Baltimore area represent over 82% of
the portfolio’s gross leasable area.
8
PROPERTY/LOCATION
GROSS LEASABLE
SQUARE FEET
PROPERTY/LOCATION
GROSS LEASABLE
SQUARE FEET
Shopping Centers
Ashbrook Marketplace, Ashburn, VA
Ashburn Village, Ashburn, VA
Ashland Square Phase I, Dumfries, VA
Beacon Center, Alexandria, VA
BJ’s Wholesale Club, Alexandria, VA
Boca Valley Plaza, Boca Raton, FL
Boulevard, Fairfax, VA
Briggs Chaney MarketPlace, Silver Spring, MD
Broadlands Village, Ashburn, VA
Burtonsville Town Square, Burtonsville, MD
Countryside Marketplace, Sterling, VA
Cranberry Square, Westminster, MD
Cruse MarketPlace, Cumming, GA
Flagship Center, Rockville, MD
French Market, Oklahoma City, OK
Germantown, Germantown, MD
The Glen, Woodbridge, VA
Great Falls Center, Great Falls, VA
Hampshire Langley, Takoma Park, MD
Hunt Club Corners, Apopka, FL
Jamestown Place, Altamonte Springs, FL
Kentlands Square I, Gaithersburg, MD
Kentlands Square II and Kentlands Pad,
Gaithersburg, MD
Kentlands Place, Gaithersburg, MD
Lansdowne Town Center, Leesburg, VA
Leesburg Pike Plaza, Baileys Crossroads, VA
Lumberton Plaza, Lumberton, NJ
Metro Pike Center, Rockville, MD
Shops at Monocacy, Frederick, MD
Northrock, Warrenton, VA
Olde Forte Village, Ft. Washington, MD
Olney, Olney, MD
Orchard Park, Dunwoody, GA
Palm Springs Center, Altamonte Springs, FL
Ravenwood, Baltimore, MD
85,819
221,596
23,120
359,671
115,660
121,365
49,140
194,258
174,438
139,928
138,804
141,450
78,686
21,500
246,148
18,982
136,440
91,666
131,700
107,103
96,201
119,694
253,052
40,697
196,817
97,752
192,718
67,488
111,166
100,032
143,577
53,765
87,365
126,446
93,328
Shopping Centers continued
11503 Rockville Pike/5541 Nicholson Lane,
Rockville, MD
1500/1580/1582 Rockville Pike, Rockville, MD
Seabreeze Plaza, Palm Harbor, FL
Marketplace at Sea Colony, Bethany Beach, DE
Seven Corners, Falls Church, VA
Severna Park Marketplace, Severna Park, MD
Shops at Fairfax, Fairfax, VA
Smallwood Village Center, Waldorf, MD
Southdale, Glen Burnie, MD
Southside Plaza, Richmond, VA
South Dekalb Plaza, Atlanta, GA
Thruway, Winston-Salem, NC
Village Center, Centreville, VA
Westview Village, Frederick, MD
White Oak, Silver Spring, MD
40,249
105,428
146,673
21,677
573,481
254,011
68,762
173,341
485,628
371,761
163,418
365,816
145,651
103,186
480,676
TOTAL SHOPPING CENTERS
7,877,330
Mixed-Use Properties
390,683
Avenel Business Park, Gaithersburg, MD
108,386
Clarendon Center – North, Arlington, VA
Clarendon Center – South, Arlington, VA
293,565
(includes 244 apartments comprising 188,671 square feet)
223,447
Park Van Ness, Washington, DC
(includes 271 apartments comprising 214,600 square feet)
227,651
601 Pennsylvania Ave., Washington, DC
Washington Square, Alexandria, VA
236,376
464,757
The Waycroft, Arlington, VA
(includes 491 apartments comprising 404,709 square feet)
TOTAL MIXED-USE PROPERTIES
1,944,865
Land and Development Parcels
Twinbrook Quarter, Rockville, MD
Hampden House, Bethesda, MD
Ashland Square Phase II, Manassas, VA
New Market, New Market, MD
TOTAL PORTFOLIO
9,822,195
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM
MESSAGE to our ShareholdersSAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File number 1-12254
SAUL CENTERS, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
52-1833074
(I.R.S. Employer
Identification No.)
7501 Wisconsin Avenue, Suite 1500E, Bethesda, Maryland 20814-6522
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (301) 986-6200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, Par Value $0.01 Per Share
Depositary Shares each representing 1/100th of a share of
6.125% Series D Cumulative Redeemable Preferred
Stock, Par Value $0.01 Per Share
Depositary Shares each representing 1/100th of a share of
6.000% Series E Cumulative Redeemable Preferred Stock,
Par Value $0.01 Per Share
Trading symbol:
BFS
BFS/PRD
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
BFS/PRE
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: N/A
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act Yes ☐ No ☒.
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements
of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period
pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒.
The number of shares of Common Stock, $0.01 par value, issued and outstanding as of February 23, 2023 was
23,913,630.
At June 30, 2022, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant was $619.1 million based upon the closing price of the registrant’s Common Stock on the New York Stock Exchange
on June 30, 2022, the last business day of the registrant's most recently completed second fiscal quarter. The determination of
affiliate status is solely for the purposes of this report and shall not be construed as an admission for the purposes of
determining affiliate status.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant incorporates by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K
portions of registrant’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the Securities
Exchange Commission pursuant to Regulation 14A. The definitive Proxy Statement will be filed with the Commission not later
than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
Page Numbers
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition And Results of
Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management And Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
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Schedule III. Real Estate and Accumulated Depreciation
F-30
FINANCIAL STATEMENT SCHEDULE
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PART I
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained herein constitute forward-looking statements as such term is defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are not guarantees of performance. Our future results, financial condition
and business may differ materially from those expressed in these forward-looking statements. You can find many of
these statements by looking for words such as “plans,” “intends,” “estimates,” “anticipates,” “expects,”
“believes” or similar expressions in this Form 10-K. Although management believes that the expectations reflected
in such forward-looking statements are based upon present expectations and reasonable assumptions, our actual
results could differ materially from those set forth in the forward-looking statements. Forward-looking statements
speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating
results over time, unless required by law. Certain factors that could cause actual results or events to differ
materially from those we anticipate are described in “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our
actual results to differ materially from those presented in our forward-looking statements:
•
•
•
•
challenging domestic and global credit markets and their effect on discretionary spending;
the ability of our tenants to pay rent;
our reliance on shopping center “anchor” tenants and other significant tenants;
our substantial relationships with members of the Saul Organization;
•
risks of financing, such as increases in interest rates, restrictions imposed by our debt, our ability
to meet existing financial covenants and our ability to consummate planned and additional financings on
acceptable terms;
•
•
•
our development activities;
our access to additional capital;
our ability to successfully complete additional acquisitions or redevelopments, or if they are
consummated, whether such acquisitions or developments perform as expected;
•
risks relating to cybersecurity, including disruption to our business and operations and exposure
to liabilities from tenants, employees, capital providers, and other third parties;
•
risks generally incident to the ownership of real property, including adverse changes in economic
conditions, changes in the investment climate for real estate, changes in real estate taxes and other
operating expenses, adverse changes in governmental rules and fiscal policies, the relative illiquidity of
real estate and environmental risks; and
•
risks related to our status as a REIT for federal income tax purposes, such as the existence of
complex regulations relating to our status as a REIT, the effect of future changes to REIT requirements as a
result of new legislation and the adverse consequences of the failure to qualify as a REIT.
In addition, we describe risks and uncertainties that could cause actual results and events to differ materially in
“Risk Factors” (Part I, Item 1A of this Annual Report on Form 10-K), “Quantitative and Qualitative Disclosures
about Market Risk” (Part II, Item 7A), and “Management’s Discussion and Analysis of Financial Conditions and
Results of Operations” (Part II, Item 7).
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Item 1. Business
General
Saul Centers, Inc. (“Saul Centers”) was incorporated under the Maryland General Corporation Law on
June 10, 1993. Saul Centers operates as a real estate investment trust (a “REIT”) under the Internal Revenue Code of
1986, as amended (the “Code”). The Company is required to annually distribute at least 90% of its REIT taxable
income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul
Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers,
together with its wholly owned subsidiaries and the limited partnerships of which Saul Centers or one of its
subsidiaries is the sole general partner, are referred to collectively as the “Company.” B. Francis Saul II serves as
Chairman of the Board of Directors and Chief Executive Officer of Saul Centers.
The Company’s primary strategy is to continue to focus on diversification of its assets through
development of transit-centric, residential mixed-use projects in the Washington, D.C. metropolitan area. The
Company’s operating strategy also includes improvement of the operating performance and internal growth of its
Shopping Centers and will supplement its development of residential mixed-used projects with selective
redevelopment and renovations of its core Shopping Centers.
Saul Centers was formed to continue and expand the shopping center business previously owned and
conducted by the B. F. Saul Real Estate Investment Trust (the “Saul Trust”), the B. F. Saul Company and certain
other affiliated entities, each of which is controlled by B. Francis Saul II and his family members (collectively, the
"Saul Organization”). On August 26, 1993, members of the Saul Organization transferred to Saul Holdings Limited
Partnership, a newly formed Maryland limited partnership (the “Operating Partnership”), and two newly formed
subsidiary limited partnerships (the “Subsidiary Partnerships,” and collectively with the Operating Partnership, the
“Partnerships”), shopping center and mixed-use properties, and the management functions related to the transferred
properties. Since its formation, the Company has developed and purchased additional properties. The Company
conducts its business through the Operating Partnership and/or directly or indirectly owned subsidiaries.
As of December 31, 2022, the Company’s properties (the “Current Portfolio Properties”) consisted of
50 shopping center properties (the “Shopping Centers”), seven mixed-use properties, which are comprised of office,
retail and multi-family residential uses (the “Mixed-Use Properties”) and four (non-operating) development
properties.
Management of the Current Portfolio Properties
The Operating Partnership manages the Current Portfolio Properties and will manage any subsequently
acquired or developed properties. The management of the properties includes performing property management,
leasing, design, renovation, development and accounting duties for each property. The Operating Partnership
provides each property with a fully integrated property management capability, with approximately 70 full-time
equivalent employees at its headquarters office and 59 full-time employees and nine part-time employees at its
properties and with an extensive and mature network of relationships with tenants and potential tenants as well as
with members of the brokerage and property owners’ communities. The Company currently does not, and does not
intend to, retain third party managers or provide management services to third parties.
The Company augments its property management capabilities by sharing with the Saul Organization
certain ancillary functions, at cost, such as information technology and payroll services, benefits administration and
in-house legal services. The Company also shares insurance administration expenses on a pro rata basis with the
Saul Organization. Management believes that these arrangements result in lower costs than could be obtained by
contracting with third parties. These arrangements permit the Company to capture greater economies of scale in
purchasing from third party vendors than would otherwise be available to the Company alone and to capture internal
economies of scale by avoiding payments representing profits with respect to functions provided internally.
The terms of all sharing arrangements with the Saul Organization, including payments related thereto, are specified
in a written agreement and are reviewed annually by the Audit Committee of the Company’s Board of Directors.
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The Company subleases its corporate headquarters space from the Saul Organization at the Company’s
share of the cost. A discussion of the lease terms is provided in Note 7, Long Term Lease Obligations, of the Notes
to Consolidated Financial Statements.
Principal Offices
The principal offices of the Company are located at 7501 Wisconsin Avenue, Suite 1500E, Bethesda,
Maryland 20814-6522, and the Company’s telephone number is (301) 986-6200. The Company’s internet web
address is www.saulcenters.com. Information contained on the Company’s website is not part of this report. The
Company makes available free of charge on its website its annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after the reports are electronically
filed with, or furnished to, the Securities and Exchange Commission (“SEC”). We intend to comply with the
requirements of Item 5.05 of Form 8-K regarding amendments to and waivers under the code of business conduct
and ethics applicable to our Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer
by providing such information on our website within four days after effecting any amendment to, or granting any
waiver under, that code, and we will maintain such information on our website for at least twelve months.
Alternatively, you may access these reports at the SEC’s website: www.sec.gov.
Policies with Respect to Certain Activities
The following is a discussion of the Company’s operating strategy and certain of its investment,
financing and other policies. These strategies and policies have been determined by the Board of Directors and, in
general, may be amended or revised from time to time by the Board of Directors without a vote of the Company’s
stockholders.
Operating Strategy
The Company’s primary strategy is to continue to focus on diversification of its assets through
development of transit-centric, residential mixed-use projects in the Washington, D.C. metropolitan area. The
Company’s operating strategy also includes improvement of the operating performance of its assets, internal growth
of its Shopping Centers through the addition of pad sites and supplementing its development pipeline with selective
redevelopment and renovations of its core Shopping Centers. Community and neighborhood shopping centers
typically provide reliable cash flow and steady long-term growth potential. Management actively manages its
property portfolio by engaging in strategic leasing activities, tenant selection, lease negotiation and shopping center
expansion and reconfiguration. The Company seeks to optimize its retail tenant mix by selecting tenants for its
Shopping Centers and Mixed-Use Properties that provide a broad spectrum of goods and services, consistent with
the role of community and neighborhood shopping centers as the source for day-to-day necessities. Management
believes that such a synergistic tenanting approach results in increased cash flow from existing tenants by providing
the Shopping Centers with consistent traffic and a desirable mix of shoppers, resulting in increased sales and,
therefore, increased cash flows.
Management believes there is potential for long term growth in cash flow as existing leases for space in
the Shopping Centers and Mixed-Use Properties expire and are renewed, or newly available or vacant space is
leased. The Company intends to renegotiate leases where possible and seek new tenants for available space in order
to optimize the mix of uses to improve foot traffic through the Shopping Centers. As leases expire, management
expects to revise rental rates, lease terms and conditions, relocate existing tenants, reconfigure tenant spaces and
introduce new tenants with the goals of increasing occupancy, improving overall retail sales, and ultimately
increasing cash flow as economic conditions improve. In those circumstances in which leases are not otherwise
expiring, management selectively attempts to increase cash flow through a variety of means, or in connection with
renovations or relocations, recapturing leases with below market rents and re-leasing at market rates, as well as
replacing financially troubled tenants. When possible, management also will seek to include scheduled increases in
base rent, as well as percentage rental provisions, in its leases.
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It is management’s intention to hold properties for long-term investment and to place strong emphasis
on regular maintenance, periodic renovation and capital improvement. Management believes that characteristics
such as cleanliness, lighting and security are particularly important in community and neighborhood shopping
centers, which are frequently visited by shoppers during hours outside of the normal work-day. Management
believes that the Shopping Centers and Mixed-Use Properties generally are attractive and well maintained. The
Shopping Centers and Mixed-Use Properties will undergo expansion, renovation, reconfiguration and modernization
from time to time when management believes that such action is warranted by opportunities or changes in the
competitive environment of a property. The Company will continue its practice of expanding existing properties by
undertaking new construction on outparcels suitable for development as free standing retail or office facilities.
Investment in Real Estate
The Company has a pipeline of entitled sites in its portfolio, some of which are currently shopping
center operating properties, for development of up to 3,700 apartment units and 975,000 square feet of retail and
office space. All such sites are located proximate to Washington Metropolitan Area Transit Authority (“WMATA”)
red line Metro stations in Montgomery County, Maryland.
The Company intends to selectively add free-standing pad site buildings within its Shopping Center
portfolio, and replace underperforming tenants with tenants that generate strong traffic, including anchor stores such
as supermarkets and drug stores. The Company has executed leases or leases are under negotiation for seven more
pad sites.
In recent years, there has been a limited amount of quality properties for sale and pricing of those
properties has escalated. Accordingly, management believes acquisition opportunities for investment in existing and
new shopping center and mixed-use properties in the near future is uncertain. Nevertheless, because of the
Company’s conservative capital structure, including its cash and capacity under its senior unsecured credit facility
(the “Credit Facility”), management believes that the Company is positioned to take advantage of additional
investment opportunities as attractive properties are identified and market conditions improve. (See “Item 1.
Business - Capital Policies”.) It is management’s view that several of the sub-markets in which the Company
operates have, or are expected to have in the future, attractive supply/demand characteristics. The Company will
continue to evaluate acquisition, development and redevelopment as integral parts of its overall business plan.
In evaluating a particular redevelopment, renovation, acquisition, or development, management will
consider a variety of factors, including: (i) the location, size and accessibility of the property, with an emphasis on
the Washington, D.C./Baltimore metropolitan area; (ii) the demographic characteristics of the community, as well as
the local real estate market, including potential for growth and potential regulatory impediments to development;
(iii) the purchase price; (iv) the non-financial terms of the transaction; (v) the “fit” of the property with the
Company’s existing portfolio; (vi) the potential for, and current extent of, any environmental problems; (vii) the
current and historical occupancy rates of the property or any comparable or competing properties in the same
market; (viii) the quality of construction and design and the current physical condition of the property; (ix) the
financial and other characteristics of existing tenants and the terms of existing leases; and (x) the potential for capital
appreciation.
Although it is management’s present intention to concentrate future acquisition and development
activities on transit-centric, primarily residential mixed-use properties in the Washington, D.C./Baltimore
metropolitan area, the Company may, in the future, also acquire other types of real estate in other areas of the
country as opportunities present themselves. The Company plans to continue to diversify in terms of property types,
locations, size and market, and it does not set any limit on the amount or percentage of assets that may be invested in
any one property or any one geographic area.
The Company intends to engage in such future investment and development activities in a manner that
enables the Company to qualify and maintain its status as a REIT for federal income tax purposes and that will not
cause the Company to be regulated as an investment company under the Investment Company Act of 1940, as
amended. Equity investments in acquired properties may be subject to existing mortgage financings and other
indebtedness or to new indebtedness which may be incurred in connection with acquiring or refinancing these
investments.
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Investments in Real Estate Mortgages
While the Company’s current portfolio and business objectives emphasize equity investments in
transit-centric, residential mixed-use properties, neighborhood shopping centers, and other mixed-use properties, the
Company may, at the discretion of the Board of Directors, invest in mortgages, participating or convertible
mortgages, deeds of trust and other types of real estate interests consistent with its qualification as a REIT. The
Company does not presently invest, nor does it intend to invest, in real estate mortgages.
Investments in Securities of or Interests in Persons Engaged in Real Estate Activities and Other Issues
Subject to the requirements to maintain REIT qualification, the Company may invest in securities of
other REITs, other entities engaged in real estate activities or securities of other issuers, including for the purpose of
exercising control over such entities. The Company does not presently invest, nor does it intend to invest, in any
securities of other REITs.
Dispositions
The Company may elect to dispose of properties if, based upon management’s periodic review of the
Company’s portfolio, the Board of Directors determines that such action would be in the best interest of the
Company’s stockholders.
Capital Policies
The Company has established a debt capitalization policy relative to asset value, which is computed by
reference to the aggregate annualized cash flow from the properties in the Company’s portfolio rather than relative
to book value. The Company has used a measure tied to cash flow because it believes that the book value of its
portfolio properties, which is the depreciated historical cost of the properties, does not accurately reflect the
Company’s ability to incur indebtedness. Asset value, however, is somewhat more variable than book value, and
may not at all times reflect the fair market value of the underlying properties. As a general policy, the Company
intends to maintain a ratio of its total debt to total asset value of 50% or less and to actively manage the Company’s
leverage and debt expense on an ongoing basis in order to maintain prudent coverage of fixed charges. Given the
Company’s current debt level, it is management’s belief that the ratio of the Company’s debt to total asset value is
below 50% as of December 31, 2022.
The organizational documents of the Company do not limit the absolute amount or percentage of
indebtedness that it may incur. The Board of Directors may, from time to time, reevaluate the Company’s debt
capitalization policy in light of current economic conditions, relative costs of capital, market values of the Company
property portfolio, opportunities for acquisition, development or expansion, and such other factors as the Board of
Directors then deems relevant. The Board of Directors may modify the Company’s debt capitalization policy based
on such a reevaluation, without shareholder approval, and may increase or decrease the Company’s debt to total
asset ratio above or below 50% or may waive the policy for certain periods of time, subject to maintaining
compliance with financial covenants contained within existing debt agreements. The Company selectively refinances
or renegotiates the terms of its outstanding debt in order to extend maturities and obtain generally more favorable
loan terms, whenever management determines the financing environment is favorable.
The Company intends to finance future acquisitions and developments and to make debt repayments by
utilizing the sources of capital then deemed to be most advantageous. Such sources may include undistributed
operating cash flow, secured or unsecured bank and institutional borrowings, proceeds from the Company’s
Dividend Reinvestment and Stock Purchase Plan, proceeds from the sale of properties and private and public
offerings of debt or equity securities. Borrowings may be at the Operating Partnership or Subsidiary Partnerships
level and securities offerings may include (subject to certain limitations) the issuance of Operating Partnership
interests convertible into common stock or other equity securities.
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Other Policies
The Company has the authority to offer equity or debt securities in exchange for property and to
repurchase or otherwise acquire its common stock or other securities in the open market or otherwise, and may
engage in such activities in the future. The Company expects, but is not obligated, to issue common stock to holders
of units of the Operating Partnership upon exercise of their redemption rights. The Company has not engaged in
trading, underwriting or agency distribution or sale of securities of other issuers other than the Operating Partnership
and does not intend to do so. The Company has not made any loans to third parties, although the Company may in
the future make loans to third parties. In addition, the Company has policies relating to related party transactions
discussed in “Item 1A. Risk Factors.”
Competition
As an owner of, or investor in, transit-centric residential mixed-use properties, community and
neighborhood shopping centers, and other mixed-use properties, the Company is subject to competition from an
indeterminate number of entities in connection with the acquisition, development, ownership and leasing of similar
properties. These entities include investors with access to significant capital, such as domestic and foreign
corporations and financial institutions, publicly traded and privately held REITs, private institutional investment
funds, investment banking firms, life insurance companies and pension funds.
Competition may reduce the number of properties available for acquisition or development or increase
the price for raw land or developed properties of the type in which the Company invests. The Company faces
competition in providing leases to prospective tenants and in re-letting space to current tenants upon expiration of
their respective leases. If tenants decide not to renew or extend their leases upon expiration, the Company may not
be able to re-let the space. Even if the tenants do renew or the Company can re-let the space, the terms of renewal or
re-letting, including the cost of required renovations, may be less favorable than current lease terms or than
expectations for the space. This risk may be magnified if the properties owned by our competitors have lower
occupancy rates than the Company’s properties. As a result, these competitors may be willing to make space
available at lower prices than the space in the Current Portfolio Properties.
Management believes that success in the competition for ownership and leasing property is dependent in
part upon the geographic location of the property, the tenant mix, the performance of property managers, the amount
of new construction in the area and the maintenance and appearance of the property. Additional competitive factors
impacting the Company’s properties include the ease of access to the properties, the adequacy of related facilities
such as parking, and the demographic characteristics in the markets in which the properties compete. Overall
economic circumstances and trends and new properties in the vicinity of each of the Current Portfolio Properties are
also competitive factors.
Finally, retailers at our Shopping Centers face increasing competition from outlet stores, online retailers,
discount shopping clubs and other forms of marketing goods, such as direct mail, internet marketing and
telemarketing. This competition may reduce percentage rents payable to us and may contribute to lease defaults or
insolvency of tenants.
Human Capital
As of December 31, 2022, the Company had approximately 70 full-time equivalent corporate employees
and 59 full-time employees and nine part-time employees at its properties. None of our employees are represented
by a collective bargaining unit.
The Company is committed to equal employment opportunities and does not discriminate against any
person based on race, color, religion, gender, national origin, age, disability, sexual orientation or gender preference.
Employee compensation is competitive, and the Company provides insurance benefits, retirement savings plans,
paid time off and childcare benefits for all of its full-time employees. The Company encourages employee wellness
in every aspect of life, including physical fitness, mental well-being and social connectedness. We annually hold
several in-house training programs that focus on communication, self-awareness, delegation, feedback,
accountability, team dynamics and other skills that provide our employees with personal growth opportunities.
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We support the continuing education of our employees through (a) reimbursement of the cost of seeking
undergraduate and graduate degrees at colleges and universities and (b) reimbursement of costs related to seminars,
conferences and workshops. We previously launched a program that we call LEAD that enhances our other training
and education programs by providing our talented employees with the tools necessary to effectively lead and
manage. We manage an internship program to support the development of future real estate professionals.
Government Regulation Affecting Our Properties
The Current Portfolio Properties are subject to various laws and regulations relating to environmental
and pollution controls. The impact upon the Company from the application of such laws and regulations either
prospectively or retrospectively is not expected to have a materially adverse effect on the Company’s property
operations. As a matter of policy, the Company requires an environmental study be performed with respect to a
property that may be subject to possible environmental hazards prior to its acquisition to ascertain that there are no
material environmental hazards associated with such property.
See "Item 1A. Risk Factors — Risk Factors Related to our REIT Status and Other Laws and
Regulations" for further discussion of potential material effects of our compliance with government regulations,
including environmental regulations and the rules governing REITS.
Recent Developments
The Company is developing Twinbrook Quarter Phase I (“Phase I”) located in Rockville, Maryland.
Phase I includes an 80,000 square foot Wegmans, approximately 25,000 square feet of small shop space,
450 apartments and a 230,000 square foot office building. The office tower portion of Phase I is not being
constructed at this time. In connection with the development of the residential and retail portions of Phase I, we
must also invest in infrastructure and other items that will support both Phase I and other portions of the
development of Twinbrook Quarter. The total cost of the project is expected to be approximately $331.5 million, of
which $271.4 million is related to the development of the residential and retail portions of Phase I and $60.1 million
is related to infrastructure and other items. A portion of the project will be financed by a $145.0 million
construction-to-permanent loan. Construction of the structure is ongoing. Concrete is being poured at the 12th level
above ground, which is the final above ground level of the residential and retail portions of Phase I. Initial delivery
of Phase I is anticipated in late 2024. The development potential of all phases of the entire 18.4 acre Twinbrook
Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office
space.
The Company is developing Hampden House, a project located in downtown Bethesda, Maryland that
will include up to 366 apartment units and 10,100 square feet of retail space. The total cost of the project is expected
to be approximately $246.4 million, a portion of which will be financed by a $133.0 million construction-to-
permanent loan. Excavation is complete and below grade construction of foundation systems is in progress.
Construction is expected to be completed during 2025.
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Item 1A. Risk Factors
RISK FACTORS
Carefully consider the following risks and all of the other information set forth in this Annual Report on Form
10-K, including the consolidated financial statements and the notes thereto. If any of the events or developments described
below were actually to occur, the Company’s business, financial condition or results of operations could be adversely
affected.
In this section, unless the context indicates otherwise, the terms “Company,” “we,” “us” and “our” refer to
Saul Centers, Inc., and its subsidiaries, including the Operating Partnership.
Risk Factors Related to our Real Estate Investments and Operations
Revenue from our properties may be reduced or limited if the retail operations of our tenants are not successful.
Adverse changes in consumer spending or consumer preferences for particular goods, services or store based
retailing could severely impact our tenants’ ability to pay rent. Revenue from our properties depends primarily on the
ability of our tenants to pay the full amount of rent due under their leases on a timely basis. The amount of rent we receive
from our tenants generally will depend in part on the success of our tenants’ retail operations, making us vulnerable to
general economic downturns and other conditions affecting the retail industry. Some tenants may terminate their
occupancy due to an inability to operate profitably for an extended period of time, impacting the Company’s ability to
maintain occupancy levels.
Any reduction in our tenants’ ability to pay base rent or percentage rent may adversely affect our financial
condition and results of operations. Small business tenants and anchor retailers which lease space in the Company’s
properties may experience a deterioration in their sales or other revenue, or experience a constraint on the availability of
credit necessary to fund operations, which in turn may adversely impact those tenants’ ability to pay contractual base rents
and operating expense recoveries. Some of our leases provide for the payment, in addition to base rent, of additional rent
above the base amount according to a specified percentage of the gross sales generated by the tenants. Decreasing sales
revenue by retail tenants could adversely impact the Company’s receipt of percentage rents required to be paid by tenants
under certain leases.
We may be unable to collect balances due from tenants that file for bankruptcy protection.
If a tenant or lease guarantor files for bankruptcy, we may not be able to collect all pre-petition amounts owed
by that party. In addition, a tenant that files for bankruptcy protection may terminate our lease in which event we would
have a general unsecured claim that would likely be for less than the full amount owed to us for the remainder of the lease
term, which could adversely affect our financial condition and results of operations.
Our ability to increase our net income depends on the success and continued presence of our shopping center
“anchor” tenants and other significant tenants.
Our net income could be adversely affected in the event of a downturn in the business, or the bankruptcy or
insolvency, of any anchor store or anchor tenant. Our largest shopping center anchor tenant is Giant Food, which
accounted for 5.1% of our total revenue for the year ended December 31, 2022. The closing of one or more anchor stores
prior to the expiration of the lease of that store or the termination of a lease by one or more of a property’s anchor tenants
could adversely affect that property and result in lease terminations by, or reductions in rent from, other tenants whose
leases may permit termination or rent reduction in those circumstances or whose own operations may suffer as a result.
This could reduce our net income.
We may experience difficulty or delay in renewing leases or leasing vacant space.
We derive most of our revenue directly or indirectly from rent received from our tenants. We are subject to
the risks that, upon expiration, leases for space in our properties may not be renewed, the space and other vacant space
may not be re-leased, or the terms of renewal or re-lease, including the cost of required renovations or concessions to
tenants, may be less favorable than previous lease terms. Constraints on the availability of credit to office and retail
tenants, necessary to purchase and install improvements, fixtures and equipment, and fund start-up business expenses,
could impact the Company’s ability to procure new tenants for spaces currently vacant in existing operating properties or
properties under development. As a result, our results of operations and our net income could be reduced.
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Our development activities are inherently risky.
The ground-up development of improvements on real property, which is different from the renovation and
redevelopment of existing improvements, presents substantial risks. In addition to the risks associated with real estate
investment in general as described elsewhere, the risks associated with our remaining development activities include:
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•
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•
•
significant time lag between commencement and completion subjects us to greater risks due to
fluctuation in the general economy;
failure or inability to obtain construction or permanent financing on favorable terms;
expenditure of money and time on projects that may never be completed;
inability to achieve projected rental rates or anticipated pace of lease-up;
higher-than-estimated construction costs, including inflation of labor and material costs; and
possible delay in completion of the project because of a number of factors, including weather, labor
disruptions, supply-chain related delays, construction delays or delays in receipt of zoning or other
regulatory approvals, or acts of God (such as fires, earthquakes or floods).
Developments, redevelopments and acquisitions may fail to perform as expected.
Our investment strategy includes the redevelopment and acquisition of community and neighborhood
shopping centers that are anchored by supermarkets, drugstores or high volume, value-oriented retailers that provide
consumer necessities. The redevelopment and acquisition of properties entails risks that include the following, any of
which could adversely affect our results of operations and our ability to meet our obligations:
•
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•
•
•
•
our estimate of the costs to improve, reposition or redevelop a property may prove to be too low,
and, as a result, the property may fail to achieve the returns we have projected, either temporarily or
for a longer time;
we may not be able to identify suitable properties to acquire or may be unable to complete the
acquisition of the properties we identify;
we may not be able to integrate new developments or acquisitions into our existing operations
successfully;
properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project at the
time we make the decision to invest, which may result in the properties’ failure to achieve the returns
we projected;
our pre-acquisition evaluation of the physical condition of each new investment may not detect
certain defects or identify necessary repairs until after the property is acquired, which could
significantly increase our total acquisition costs; and
our investigation of a property or building prior to our acquisition, and any representations we may
receive from the seller, may fail to reveal various liabilities, which could reduce the cash flow from
the property or increase our acquisition cost.
Our performance and value are subject to general risks associated with the real estate industry.
Our economic performance and the value of our real estate assets, and, consequently, the value of our
investments, are subject to the risk that if our properties do not generate revenue sufficient to meet our operating expenses,
including debt service and capital expenditures, our cash flow and ability to pay distributions to our stockholders will be
adversely affected. As a real estate company, we are susceptible to the following real estate industry risks:
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economic downturns in the areas where our properties are located;
adverse changes in local real estate market conditions, such as oversupply or reduction in demand;
changes in tenant preferences that reduce the attractiveness of our properties to tenants;
zoning or regulatory restrictions;
decreases in market rental rates;
weather conditions that may increase energy costs and other operating expenses;
costs associated with the need to periodically repair, renovate and re-lease space; and
increases in the cost of adequate maintenance, insurance and other operating costs, including real
estate taxes, associated with one or more properties, which may occur even when circumstances such
as market factors and competition cause a reduction in revenue from one or more properties,
although real estate taxes typically do not increase upon a reduction in such revenue.
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Geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in
the real estate markets of those areas.
Over 85% of our property operating income is generated by properties in the metropolitan Washington, DC/
Baltimore area. As a result, our financial condition, operating results and ability to make distributions could be materially
and adversely impacted by significant adverse economic changes affecting the real estate markets in that area. In turn, our
common stock is subject to greater risk vis-a-vis other enterprises whose portfolio contains greater geographic diversity.
Our results of operations may be negatively affected by adverse trends in the retail and office real estate sectors.
Tenants at our retail properties face continual competition in attracting customers from online merchants,
retailers at other shopping centers, catalogue companies, television shopping networks, warehouse stores, large
discounters, outlet malls, wholesale clubs, direct mail and telemarketers. Such competition could have a material adverse
effect on our ability to lease space in our retail properties and on the rents we can charge or the concessions we grant.
This in turn could materially and adversely affect our results of operations and cash flows, and could affect the realizable
value of our assets upon sale. Further, as new technologies emerge, the relationships among customers, retailers, and
shopping centers are evolving rapidly and it is critical we adapt to such new technologies and relationships on a timely
basis. We may be unable to adapt quickly and effectively, which could adversely impact our financial performance.
Some businesses are rapidly evolving to make employee telecommuting, flexible work schedules, open
workplaces and teleconferencing increasingly common. These practices enable businesses to reduce their space
requirements. A continuation of the movement towards these practices could over time erode the overall demand for
office space and, in turn, place downward pressure on occupancy, rental rates and property valuations, each of which
could have an adverse effect on our financial position, results of operations, cash flows and ability to make distributions to
our stockholders.
Many real estate costs are fixed, even if income from our properties decreases.
Our financial results depend primarily on leasing space in our properties to tenants on terms favorable to us.
Costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced
even when a property is not fully occupied, rental rates decrease, or other circumstances cause a reduction in income from
the investment. As a result, cash flow from the operations of our properties may be reduced if a tenant does not pay its
rent or we are unable to rent our properties on favorable terms. Under those circumstances, we might not be able to
enforce our rights as landlord without delays, and may incur substantial legal costs. Additionally, new properties that we
may acquire or develop may not produce any significant revenue immediately, and the cash flow from existing operations
may be insufficient to pay the operating expenses and debt service associated with that property until the property is fully
leased.
Competition may limit our ability to purchase new properties and generate sufficient income from tenants.
Numerous commercial developers and real estate companies compete with us in seeking tenants for properties
and properties for acquisition. This competition may:
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reduce properties available for acquisition;
increase the cost of properties available for acquisition;
reduce rents payable to us;
interfere with our ability to attract and retain tenants;
lead to increased vacancy rates at our properties; and
adversely affect our ability to minimize expenses of operation.
Retailers at our shopping center properties also face increasing competition from outlet stores, discount
shopping clubs, and other forms of marketing of goods, such as direct mail, internet marketing and telemarketing. This
competition may reduce percentage rents payable to us and may contribute to lease defaults and insolvency of tenants. If
we are unable to continue to attract appropriate retail tenants to our properties, or to purchase new properties in our
geographic markets, it could materially affect our ability to generate net income, service our debt and make distributions
to our stockholders.
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We may be unable to sell properties when appropriate because real estate investments are illiquid.
Real estate investments generally cannot be sold quickly. In addition, there are some limitations under federal
income tax laws applicable to real estate and in particular to REITs that may limit our ability to sell our assets. We may
not be able to alter our portfolio promptly in response to changes in economic or other conditions. Our inability to respond
quickly to adverse changes in the performance of our investments could have an adverse effect on our ability to meet our
obligations and make distributions to our stockholders.
Risk Factors Related to our Funding Strategies and Capital Structure
We have substantial relationships with members of the Saul Organization whose interests could conflict with the
interests of other stockholders.
Influence of Officers, Directors and Significant Stockholders.
Mr. B. F. Saul II, our Chief Executive Officer and Chairman of the Board, D. Todd Pearson, our President
and Chief Operating Officer, and Christine Nicolaides Kearns, our Executive Vice President-Chief Legal and
Administrative Officer, are members of the Saul Organization, and persons associated with the Saul Organization
constitute five of the eleven members of our Board of Directors. In addition, as of December 31, 2022, Mr. B. F. Saul II
had the potential to exercise control over 10,739,407 shares of our common stock representing 44.9% of our issued and
outstanding shares of common stock. Mr. B. F. Saul II also beneficially owned, as of December 31, 2022, 8,827,873 units
of the Operating Partnership. In general, these units are convertible into shares of our common stock on a one-for-one
basis. The ownership limitation set forth in our articles of incorporation is 39.9% in value of our issued and outstanding
equity securities (which includes both common and preferred stock). As of December 31, 2022, Mr. B. F. Saul II and
members of the Saul Organization owned common stock representing approximately 39.0% in value of all our issued and
outstanding equity securities. Members of the Saul Organization are permitted under our articles of incorporation to
convert Operating Partnership units into shares of common stock or acquire additional shares of common stock until the
Saul Organization’s actual ownership of common stock reaches 39.9% in value of our equity securities. As of
December 31, 2022, approximately 411,000 of the 8,827,873 units of the Operating Partnership would have been
permitted to convert into additional shares of common stock, and would have resulted in Mr. B. F. Saul II and members of
the Saul Organization owning common stock representing approximately 39.9% in value of all our issued and outstanding
equity securities.
As a result of these relationships, members of the Saul Organization will be in a position to exercise
significant influence over our affairs, which influence might not be consistent with the interests of other stockholders.
Except as discussed below, we do not have any written policies or procedures for the review, approval or ratification of
transactions with related persons.
Management Time.
Our Chief Executive Officer, President and Chief Operating Officer, Executive Vice President-Chief Legal
and Administrative Officer and Senior Vice President-Chief Accounting Officer and Treasurer are also officers of various
entities of the Saul Organization. Although we believe that these officers spend sufficient management time to meet their
responsibilities as our officers, the amount of management time devoted to us will depend on our specific circumstances at
any given point in time. As a result, in a given period, these officers may spend less than a majority of their management
time on our matters. Over extended periods of time, we believe that our Chief Executive Officer will spend less than a
majority of his management time on Company matters, while our President and Chief Operating Officer, Executive Vice
President-Chief Legal and Administrative Officer and Senior Vice President-Chief Accounting Officer and Treasurer may
or may not spend less than a majority of their time on our matters.
Exclusivity and Right of First Refusal Agreements.
We will acquire, develop, own and manage shopping center properties and will own and manage other
commercial properties, and, subject to certain exclusivity agreements and rights of first refusal to which we are a party,
the Saul Organization will continue to develop, acquire, own and manage commercial properties and own land suitable for
development as, among other things, shopping centers and other commercial properties. Therefore, conflicts could
develop in the allocation of acquisition and development opportunities with respect to commercial properties other than
shopping centers and with respect to development sites, as well as potential tenants and other matters, between us and the
Saul Organization. The agreement relating to exclusivity and the right of first refusal between us and the Saul
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Organization generally requires the Saul Organization to conduct its shopping center business exclusively through us and
to grant us a right of first refusal to purchase commercial properties and development sites in certain market areas that
become available to the Saul Organization. The Saul Organization has granted the right of first refusal to us, acting
through our independent directors, in order to minimize potential conflicts with respect to commercial properties and
development sites. We and the Saul Organization have entered into this agreement in order to minimize conflicts with
respect to shopping centers and certain of our commercial properties. See Note 9 to the Consolidated Financial
Statements for a discussion of related party transactions.
Shared Services.
We share with the Saul Organization certain ancillary functions, such as computer and payroll services,
benefits administration and in-house legal services. The terms of all sharing arrangements, including payments related
thereto, are reviewed periodically by our Audit Committee, which is comprised solely of independent directors. Included
in our general and administrative expenses or capitalized to specific development projects, for the year ended
December 31, 2022, are charges totaling $9.6 million, net, related to such shared services, which included rental payments
for the Company’s headquarters lease, which were billed by the Saul Organization. Although we believe that the amounts
allocated to us for such shared services represent a fair allocation between us and the Saul Organization, we have not
obtained a third party appraisal of the value of these services.
The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary of the B. F. Saul Company and a member of
the Saul Organization, is a general insurance agency that receives commissions and counter-signature fees in connection
with our insurance program. Such commissions and fees amounted to approximately $286,900 for the year ended
December 31, 2022.
Related Party Rents.
We sublease space for our corporate headquarters from a member of the Saul Organization, the building of
which is owned by another member of the Saul Organization. The lease commenced in March 2002 and expires in
February 2027. The Company and the Saul Organization entered into a shared services agreement whereby each party
pays a portion of the total rental payments based on a percentage proportionate to the number of employees employed by
each party. The Company’s rent expense for the year ended December 31, 2022 was $824,300. Although the Company
believes that this lease has terms comparable to what would have been obtained from a third-party landlord, it did not seek
bid proposals from any independent third parties when entering into its new corporate headquarters lease.
Conflicts Based on Individual Tax Considerations.
The tax basis of members of the Saul Organization in our portfolio properties which were contributed to
certain partnerships at the time of our initial public offering in 1993 was substantially less than the fair market value
thereof at the time of their contribution. In the event of our disposition of such properties, a disproportionately large share
of the gain for federal income tax purposes would be allocated to members of the Saul Organization. In addition, future
reductions of the level of our debt, or future releases of the guarantees or indemnities with respect thereto by members of
the Saul Organization, would cause members of the Saul Organization to be considered, for federal income tax purposes,
to have received constructive distributions. Depending on the overall level of debt and other factors, these distributions
could be in excess of the Saul Organization’s basis in their Partnership units, in which case such excess constructive
distributions would be taxable.
Consequently, it is in the interests of the Saul Organization that we continue to hold the contributed portfolio
properties, that a portion of our debt remains outstanding or is refinanced and that the Saul Organization guarantees and
indemnities remain in place, in order to defer the taxable gain to members of the Saul Organization. Therefore, the Saul
Organization may seek to cause us to retain the contributed portfolio properties, and to refrain from reducing our debt or
releasing the Saul Organization guarantees and indemnities, even when such action may not be in the interests of some, or
a majority, of our stockholders. In order to minimize these conflicts, decisions as to sales of the portfolio properties, or
any refinancing, repayment or release of guarantees and indemnities with respect to our debt, will be made by the
independent directors.
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Ability to Block Certain Actions.
Under applicable law and the limited partnership agreement of the Operating Partnership, consent of the
limited partners is required to permit certain actions, including the sale of all or substantially all of the Operating
Partnership’s assets. Therefore, members of the Saul Organization, through their status as limited partners in the
Operating Partnership, could prevent the taking of any such actions, even if they were in the interests of other
stockholders.
The amount of debt we have and the restrictions imposed by that debt could adversely affect our business and financial
condition.
As of December 31, 2022, we had approximately $1.2 billion of debt outstanding, approximately
$1.07 billion of which was fixed-rate debt and approximately $164.0 million of which was variable-rate debt outstanding
under our Credit Facility.
We currently have a general policy of limiting our borrowings to 50% of asset value, i.e., the value of our
portfolio, as determined by our Board of Directors by reference to the aggregate annualized cash flow from our portfolio.
Our organizational documents contain no limitation on the amount or percentage of indebtedness which we may incur.
Therefore, the Board of Directors could alter or eliminate the current limitation on borrowing at any time. If our debt
capitalization policy were changed, we could increase our leverage, resulting in an increase in debt service that could
adversely affect our operating cash flow and our ability to make expected distributions to stockholders, and in an
increased risk of default on our obligations.
We have established our debt capitalization policy relative to asset value, which is computed by reference to
the aggregate annualized cash flow from the properties in our portfolio rather than relative to book value. We have used a
measure tied to cash flow because we believe that the book value of our portfolio properties, which is the depreciated
historical cost of the properties, does not accurately reflect our ability to borrow. Asset value, however, is somewhat more
variable than book value, and may not at all times reflect the fair market value of the underlying properties.
The amount of our debt outstanding from time to time could have important consequences to our
stockholders. For example, it could:
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require us to dedicate a substantial portion of our cash flow from operations to payments on our debt,
thereby reducing funds available for operations, property acquisitions and other appropriate business
opportunities that may arise in the future;
limit our ability to obtain any additional financing we may need in the future for working capital,
debt refinancing, capital expenditures, acquisitions, development or other general corporate
purposes;
make it difficult to satisfy our debt service requirements;
limit our ability to make distributions on our outstanding common and preferred stock;
require us to dedicate increased amounts of our cash flow from operations to payments on our
variable rate, unhedged debt if interest rates rise;
limit our flexibility in planning for, or reacting to, changes in our business and the factors that affect
the profitability of our business, which may place us at a disadvantage compared to competitors with
less debt or debt with less restrictive terms; and
limit our ability to obtain any additional financing we may need in the future for working capital,
debt refinancing, capital expenditures, acquisitions, development or other general corporate
purposes.
Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance, our
indebtedness will depend primarily on our future performance, which to a certain extent is subject to economic, financial,
competitive and other factors described in this section. If we are unable to generate sufficient cash flow from our business
in the future to service our debt or meet our other cash needs, we may be required to refinance all or a portion of our
existing debt, sell assets or obtain additional financing to meet our debt obligations and other cash needs. Our ability to
refinance, sell assets or obtain additional financing may not be possible on terms that we would find acceptable.
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We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities,
and the failure to comply could result in defaults that accelerate the payment under our debt.
Our secured debt generally contains customary covenants, including, among others, provisions:
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relating to the maintenance of the property securing the debt;
restricting our ability to assign or further encumber the properties securing the debt; and
restricting our ability to enter into certain new leases or to amend or modify certain existing leases
without obtaining consent of the lenders.
Our unsecured debt generally contains various restrictive covenants. The covenants in our unsecured debt
include, among others, provisions restricting our ability to:
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incur additional unsecured debt;
guarantee additional debt;
make certain distributions, investments and other restricted payments, including distribution
payments on our outstanding stock;
create certain liens;
increase our overall secured and unsecured borrowing beyond certain levels; and
consolidate, merge or sell all or substantially all of our assets.
Our ability to meet some of the covenants in our debt, including covenants related to the condition of the
property or payment of real estate taxes, may be dependent on the performance by our tenants under their leases.
In addition, our Credit Facility requires us and our subsidiaries to satisfy financial covenants. The material
financial covenants require us, on a consolidated basis, to:
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limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to
less than 60% (leverage ratio);
limit the amount of debt so that interest coverage will exceed 2.0x on a trailing four-quarter basis
(interest expense coverage); and
limit the amount of debt so that interest, scheduled principal amortization and preferred dividend
coverage exceeds 1.4x on a trailing four-quarter basis (fixed charge coverage).
As of December 31, 2022, we were in compliance with all such covenants. If we were to breach any of our
debt covenants and did not cure the breach within any applicable cure period, our lenders could require us to repay the
debt immediately, and, if the debt is secured, could immediately begin proceedings to take possession of the property
securing the loan. Some of our debt arrangements are cross-defaulted, which means that the lenders under those debt
arrangements can put us in default and require immediate repayment of their debt if we breach and fail to cure a covenant
under certain of our other debt obligations. As a result, any default under our debt covenants could have an adverse effect
on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares.
The market value of our debt and equity securities is subject to various factors that may cause significant fluctuations
or volatility.
As with other publicly traded securities, the market price of our debt and equity securities depends on various
factors, which may change from time to time and/or may be unrelated to our financial condition, operating performance or
prospects that may cause significant fluctuations or volatility in such prices. These factors include, among others:
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general economic and financial market conditions;
level and trend of interest rates;
our ability to access the capital markets to raise additional capital;
the issuance of additional equity or debt securities;
changes in our funds from operations (“FFO”) or earnings estimates;
changes in our credit or analyst ratings;
our financial condition and performance;
market perception of our business compared to other REITs; and
market perception of REITs, in general, compared to other investment alternatives.
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The phase-out of LIBOR could affect interest rates under our variable rate debt and interest rate swap arrangements.
The U.S. dollar London Interbank Offered Rate (“LIBOR”) was previously used as a reference rate for our
Credit Facility. On July 27, 2017, the United Kingdom's Financial Conduct Authority announced it intended to stop
compelling banks to submit rates for the calculation of LIBOR after 2021. On November 30, 2020, the ICE Benchmark
Administration announced its plan to extend the date that most LIBOR values would cease being computed and published
from December 31, 2021 to June 30, 2023. The Federal Reserve Board and the Federal Reserve Bank of New York
organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”)
as its preferred alternative to LIBOR in derivatives and other financial contracts. However, SOFR and LIBOR differ in
certain important respects. SOFR is a secured overnight rate, while LIBOR is an unsecured rate that represents interbank
funding over different maturities. In addition, because SOFR is a transaction-based rate, it is backward-looking, whereas
LIBOR is forward-looking. Because of these and other differences, there can be no assurance that SOFR will perform in
the same way as LIBOR would have done at any time, and there is no guarantee that it is a comparable substitute for
LIBOR. At this time, we cannot predict the long term effect of any discontinuance, modification or other reforms to
LIBOR or whether SOFR or another alternative reference rate will attain market traction as a LIBOR replacement. As of
October 3, 2022, LIBOR was phased out as a reference rate under our Credit Facility and SOFR replaced it as the
benchmark index. SOFR may result in higher interest charges than LIBOR and may result in increased volatility in
markets for instruments that previously relied on LIBOR, all of which could negatively impact our cash flow.
Our ability to grow will be limited if we cannot obtain additional capital.
Our growth strategy includes the redevelopment of properties we already own and the acquisition of
additional properties. Because we are required to distribute to our stockholders at least 90% of our taxable income each
year to continue to qualify as a real estate investment trust, or REIT, for federal income tax purposes, in addition to our
undistributed operating cash flow, we rely upon the availability of debt or equity capital to fund our growth, which
financing may or may not be available on favorable terms or at all. The debt could include mortgage loans from third
parties or the sale of debt securities. Equity capital could include our common stock or preferred stock. Additional
financing, refinancing or other capital may not be available in the amounts we desire or on favorable terms. Our access to
debt or equity capital depends on a number of factors, including the general state of the capital markets, the market’s
perception of our growth potential, our ability to pay dividends, and our current and potential future earnings. Depending
on the outcome of these factors, we could experience delay or difficulty in implementing our growth strategy on
satisfactory terms, or be unable to implement this strategy.
Risk Factors Related to our REIT Status and Other Laws and Regulations
Environmental laws and regulations could reduce the value or profitability of our properties.
All real property and the operations conducted on real property are subject to federal, state and local laws,
ordinances and regulations relating to hazardous materials, environmental protection and human health and safety. Under
various federal, state and local laws, ordinances and regulations, we and our tenants may be required to investigate and
clean up certain hazardous or toxic substances released on or in properties we own or operate, and also may be required to
pay other costs relating to hazardous or toxic substances. This liability may be imposed without regard to whether we or
our tenants knew about the release of these types of substances or were responsible for their release. The presence of
contamination or the failure to properly remediate contamination at any of our properties may adversely affect our ability
to sell or lease those properties or to borrow using those properties as collateral. The costs or liabilities could exceed the
value of the affected real estate. We are not aware of any environmental condition with respect to any of our properties
that management believes would have a material adverse effect on our business, assets or results of operations taken as a
whole. The uses of any of our properties prior to our acquisition of the property and the building materials used at the
property are among the property-specific factors that will affect how the environmental laws are applied to our properties.
If we are subject to any material environmental liabilities, the liabilities could adversely affect our results of operations
and our ability to meet our obligations.
We cannot predict what other environmental legislation or regulations will be enacted in the future, how
existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found
to exist on the properties in the future. Compliance with existing and new laws and regulations may require us or our
tenants to spend funds to remedy environmental problems. Our tenants, like many of their competitors, have incurred, and
will continue to incur, capital and operating expenditures and other costs associated with complying with these laws and
regulations, which will adversely affect their potential profitability. Generally, our tenants must comply with
environmental laws and meet remediation requirements. Our leases typically impose obligations on our tenants to
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indemnify us from any compliance costs we may incur as a result of the environmental conditions on the property caused
by the tenant. If a tenant fails to or cannot comply, we could be forced to pay these costs. If not addressed, environmental
conditions could impair our ability to sell or re-lease the affected properties in the future or result in lower sales prices or
rent payments.
The Americans with Disabilities Act of 1990 (the “ADA”) could require us to take remedial steps with respect to newly
acquired properties.
The properties, as commercial facilities, are required to comply with Title III of the ADA. Investigation of a
property may reveal non-compliance with the ADA. The requirements of the ADA, or of other federal, state or local laws,
also may change in the future and restrict further renovations of our properties with respect to access for disabled persons.
Future compliance with the ADA may require expensive changes to the properties.
The revenue generated by our tenants could be negatively affected by various federal, state and local laws to which
they are subject.
We and our tenants are subject to a wide range of federal, state and local laws and regulations, such as local
licensing requirements, consumer protection laws and state and local fire, life-safety and similar requirements that affect
the use of the properties. The leases typically require that each tenant comply with all regulations. Failure to comply
could result in fines by governmental authorities, awards of damages to private litigants, or restrictions on the ability to
conduct business on such properties. Non-compliance of this sort could reduce our revenue from a tenant, could require
us to pay penalties or fines relating to any non-compliance, and could adversely affect our ability to sell or lease a
property.
Failure to qualify as a REIT for federal income tax purposes would cause us to be taxed as a corporation, which would
substantially reduce funds available for payment of distributions.
We believe that we are organized and qualified as a REIT, and currently intend to operate in a manner that
will allow us to continue to qualify as a REIT for federal income tax purposes under the Code. However, the IRS could
successfully assert that we are not qualified as such. In addition, we may not remain qualified as a REIT in the future.
Qualification as a REIT involves the application of highly technical and complex Code provisions. The complexity of
these provisions and of the applicable income tax regulations that have been issued under the Code by the United States
Department of Treasury is greater in the case of a REIT that holds its assets in partnership form. Certain facts and
circumstances not entirely within our control may affect our ability to qualify as a REIT. For example, in order to qualify
as a REIT, at least 95% of our gross income in any year must be derived from qualifying rents and other income.
Satisfying this requirement could be difficult, for example, if defaults by tenants were to reduce the amount of income
from qualifying rents. Also, we must make annual distributions to stockholders of at least 90% of our net taxable income
(excluding capital gains). In addition, new legislation, new regulations, new administrative interpretations or new court
decisions may significantly change the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. If we fail to qualify as a REIT:
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we would not be allowed a deduction for dividend distributions to stockholders in computing taxable
income;
we would be subject to federal income tax at regular corporate rates;
unless we are entitled to relief under specific statutory provisions, we could not elect to be taxed as a
REIT for four taxable years following the year during which we were disqualified;
we could be required to pay significant income taxes, which would substantially reduce the funds
available for investment and for distribution to our stockholders for each year in which we failed to
qualify; and
we would no longer be required by law to make any distributions to our stockholders.
We believe that the Operating Partnership is treated as a partnership, and not as a corporation, for federal
income tax purposes. If the IRS were to challenge successfully the status of the Operating Partnership as a partnership for
federal income tax purposes:
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the Operating Partnership would be taxed as a corporation;
we would cease to qualify as a REIT for federal income tax purposes; and
the amount of cash available for distribution to our stockholders would be substantially reduced.
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We may be required to incur additional debt to qualify as a REIT.
As a REIT, we must make annual distributions to stockholders of at least 90% of our REIT taxable income.
We are subject to income tax on amounts of undistributed REIT taxable income and net capital gain. In addition, we
would be subject to a 4% excise tax if we fail to distribute sufficient income to meet a minimum distribution test based on
our ordinary income, capital gain and aggregate undistributed income from prior years. We intend to make distributions to
stockholders to comply with the Code’s distribution provisions and to avoid federal income and excise tax. We may need
to borrow funds to meet our distribution requirements because:
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our income may not be matched by our related expenses at the time the income is considered
received for purposes of determining taxable income; and
non-deductible capital expenditures or debt service requirements may reduce available cash but not
taxable income.
In these circumstances, we might have to borrow funds on unfavorable terms and even if our management
believes the market conditions make borrowing financially unattractive.
Legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the IRS, could
have a material adverse effect on us and our investors.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the
legislative process, and by the Internal Revenue Service (“IRS”) and the U.S. Department of the Treasury (“Treasury”).
Changes to the tax laws or interpretations thereof by the IRS and the Treasury, with or without retroactive application,
could materially and adversely affect us and our investors. In particular, additional technical corrections legislation and
implementing regulations may be enacted or promulgated in response to the Tax Cuts and Jobs Act of 2017 (the “Act”),
and substantive legislative changes to the Act are also possible. In response to the COVID-19 pandemic, multiple pieces
of legislation have already been enacted, including the 2020 CARES Act, and there have also been significant issuances
of regulatory and other guidance, and further legislative enactments and other IRS or Treasury action is possible. No
prediction can be made as to the likelihood of passage of new tax legislation or other provisions, or the direct or indirect
effect on us and our shareholders. Accordingly, such new legislation, Treasury regulations, administrative interpretations
or court decisions could significantly and negatively affect our ability to qualify to be taxed as a REIT and/or the U.S.
federal income tax consequences to us and our investors of such qualification.
To maintain our status as a REIT, we limit the amount of shares any one stockholder can own.
The Code imposes certain limitations on the ownership of the stock of a REIT. For example, not more than
50% in value of our outstanding shares of capital stock may be owned, actually or constructively, by five or fewer
individuals (as defined in the Code). To protect our REIT status, our articles of incorporation restrict beneficial and
constructive ownership (defined by reference to various Code provisions) to no more than 2.5% in value of our issued and
outstanding equity securities by any single stockholder with the exception of members of the Saul Organization, who are
restricted to beneficial and constructive ownership of no more than 39.9% in value of our issued and outstanding equity
securities.
The constructive ownership rules are complex. Shares of our capital stock owned, actually or constructively,
by a group of related individuals and/or entities may be treated as constructively owned by one of those individuals or
entities. As a result, a single entity or individual could own less than 2.5% or 39.9% in value of our issued and outstanding
equity securities and such ownership could potentially cause a group of related individuals and/or entities to own
constructively more than 2.5% or 39.9% in value of the outstanding stock. If that happened, either the transfer or
ownership would be void or the shares would be transferred to a charitable trust and then sold to someone who can own
those shares without violating the respective ownership limit.
As of December 31, 2022, Mr. B. F. Saul II and members of the Saul Organization owned common stock
representing approximately 39.0% in value of all our issued and outstanding equity securities. In addition, members of the
Saul Organization beneficially owned Operating Partnership units that are, in general, convertible into our common stock
on a one-for-one basis. Members of the Saul Organization are permitted under our articles of incorporation to convert
Operating Partnership units into shares of common stock or acquire additional shares of common stock until the Saul
Organization’s actual ownership of common stock reaches 39.9% in value of our equity securities.
19
19
The Board of Directors may waive these restrictions on a case-by-case basis. The Board has authorized the
Company to grant waivers to look-through entities, such as mutual funds, in which shares of equity stock owned by the
entity are treated as owned proportionally by individuals who are the beneficial owners of the entity. Even though these
entities may own stock in excess of the 2.5% ownership limit, no individual beneficially or constructively would own
more than 2.5%. The Board of Directors has agreed to waive the ownership limit with respect to certain mutual funds and
similar investors. In addition, the Board of Directors has agreed to waive the ownership limit with respect to certain bank
pledgees of shares of our common stock and units issued by the Operating Partnership and held by members of the Saul
Organization.
The ownership restrictions may delay, defer or prevent a transaction or a change of our control that might
involve a premium price for our equity stock or otherwise be in the stockholders’ best interest.
General Risk Factors
Financial and economic conditions may have an adverse impact on us, our tenants’ businesses and our results of
operations.
Our business may be affected by market and economic challenges experienced by the U.S. economy or real
estate industry as a whole, by the local economic conditions in the markets in which our properties are located, including
the impact of high unemployment, volatility in the public equity and debt markets, and international economic conditions.
A prolonged deterioration of economic and other market conditions, could adversely affect our business, financial
condition, results of operations or real estate values, as well as the financial condition of our tenants and lenders, which
may expose us to increased risks of default by these parties.
Potential consequences of a prolonged deterioration of economic and other market conditions include:
•
•
•
•
the financial condition of our tenants, many of which operate in the retail industry, may be adversely
affected, which may result in tenant defaults under their leases due to bankruptcy, lack of liquidity,
operational failures or for other reasons;
the ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which
could reduce our ability to pursue acquisition and development opportunities and refinance existing
debt, reduce our returns from acquisition and development activities and increase our future interest
expense;
reduced values of our properties may limit our ability to dispose of assets at attractive prices and
may reduce the ability to refinance loans; and
one or more lenders under our credit facility could fail and we may not be able to replace the
financing commitment of any such lenders on favorable terms, or at all.
Loss of our key management could adversely affect performance and the value of our common shares.
We are dependent on the efforts of our key management. Although we believe qualified replacements could
be found for any departures of key executives, the loss of their services could adversely affect our performance and the
value of our common stock.
The outbreak of the novel coronavirus (“COVID-19”), or the future outbreak or pandemic of any other highly
infectious or contagious diseases, could have a material and adverse effect on or cause disruption to our business or
financial condition, results of operations, cash flows and the market value and trading price of our securities.
The COVID-19 pandemic (or a future pandemic) could have a material and adverse effect on or cause
disruption to our business or financial condition, results of operations and cash flows due to, among other factors:
•
•
•
a complete or partial closure of, or other operational issues at, our properties as a result of government or tenant
action;
declines in or instability of the economy or financial markets that may result in a recession or negatively impact
consumer discretionary spending, which could adversely affect retailers and consumers;
reduction of economic activity that severely impacts our tenants' business operations, financial condition and
liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, to
default on their lease, or to otherwise seek modifications of such obligations;
20
20
•
•
•
•
•
•
inability to access debt and equity capital on favorable terms, if at all, and a severe disruption and instability in
the global financial markets or deteriorations in credit and financing conditions may affect our access to capital
necessary to fund business operations, pursue acquisition and development opportunities, refinance existing debt,
reduce our ability to make cash distributions to our stockholders and increase our future interest expense;
a general decline in business activity and demand for real estate transactions could adversely affect our ability to
successfully execute investment strategies or expand our property portfolio;
a significant reduction in our cash flows could impact our ability to continue paying cash dividends to our
common and preferred stockholders at expected levels or at all;
the financial impact of COVID-19 (or a future pandemic) could negatively affect our future compliance with
financial and other covenants of our credit facility and other debt instruments, and the failure to comply with
such covenants could result in a default that accelerates the payment of such indebtedness;
the continued service and availability of personnel, including our executive officers and Board of Directors, and
our ability to recruit, attract and retain skilled personnel, to the extent our management, Board of Directors or
personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not
available or allowed to conduct work, could negatively impact our business and operating results; and
our ability to ensure business continuity in the event our continuity of operations plan is not effective or is
improperly implemented or deployed during a disruption.
The extent to which COVID-19 (or a future pandemic) impacts our operations and those of our tenants will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope,
severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and
indirect economic effects of the outbreak and containment measures, among others.
Our insurance coverage on our properties may be inadequate.
We carry comprehensive insurance on all of our properties, including insurance for liability, earthquake, fire,
flood, terrorism and rental loss. These policies contain coverage limitations. We believe this coverage is of the type and
amount customarily obtained for or by an owner of real property assets. We intend to obtain similar insurance coverage on
subsequently acquired properties.
As a consequence of various terrorist attacks and other significant losses incurred by the insurance industry,
the availability of insurance coverage has decreased and the prices for insurance have increased. As a result, we may be
unable to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition,
insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and
toxic mold, or, if offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease
to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance
available. If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital
we have invested in a property, as well as the anticipated future revenue from the property, but still remain obligated for
any mortgage debt or other financial obligations related to the property. Material losses in excess of insurance proceeds
may occur in the future. Also, due to inflation, changes in codes and ordinances, environmental considerations and other
factors, it may not be feasible to use insurance proceeds to replace a building after it has been damaged or destroyed.
Events such as these could adversely affect our results of operations and our ability to meet our obligations, including
distributions to our stockholders.
Natural disasters and climate change could have an adverse impact on our cash flow and operating results.
Climate change may add to the unpredictability and frequency of natural disasters and severe weather
conditions and create additional uncertainty as to future trends and exposures. Certain of our operations are located in
areas that are subject to natural disasters and severe weather conditions such as hurricanes, droughts, snow storms, floods
and fires. The impact of climate change or the occurrence of natural disasters can delay new development projects,
increase investment costs to repair or replace damaged properties, increase operating costs, create additional investment
costs to make improvements to existing properties to comply with climate change regulations, increase future property
insurance costs, and negatively impact the tenant demand for space. If insurance is unavailable to us or is unavailable on
acceptable terms, or if our insurance is not adequate to cover business interruption or losses from these events, our
earnings, liquidity or capital resources could be adversely affected.
21
21
We cannot assure you we will continue to pay dividends at historical rates.
Our ability to continue to pay dividends on our common stock at historical rates or to increase our common
stock dividend rate will depend on a number of factors, including, among others, the following:
•
•
•
•
our financial condition and results of future operations;
the performance of lease terms by tenants;
the terms of our loan covenants; and
our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.
If we do not maintain or increase the dividend rate on our common stock, it could have an adverse effect on
the market price of our common stock and other securities. Payment of dividends on our common stock may be subject to
payment in full of the dividends on any preferred stock or depositary shares and payment of interest on any debt securities
we may offer.
Certain tax and anti-takeover provisions of our articles of incorporation and bylaws may inhibit a change of our
control.
Certain provisions contained in our articles of incorporation and bylaws and the Maryland General
Corporation Law may discourage a third party from making a tender offer or acquisition proposal to us. If this were to
happen, it could delay, deter or prevent a change in control or the removal of existing management. These provisions also
may delay or prevent the stockholders from receiving a premium for their stock over then-prevailing market prices. These
provisions include:
•
•
•
•
•
•
•
•
the REIT ownership limit described above;
authorization of the issuance of our preferred stock with powers, preferences or rights to be
determined by the Board of Directors;
a staggered, fixed-size Board of Directors consisting of three classes of directors;
special meetings of our stockholders may be called only by the Chairman of the Board, the president,
by a majority of the directors or by stockholders possessing no less than 25% of all the votes entitled
to be cast at the meeting;
the Board of Directors, without a stockholder vote, can classify or reclassify unissued shares of
preferred stock;
a member of the Board of Directors may be removed only for cause upon the affirmative vote of
75% of the Board of Directors or 75% of the then-outstanding capital stock;
advance notice requirements for proposals to be presented at stockholder meetings; and
the terms of our articles of incorporation regarding business combinations and control share
acquisitions.
Cybersecurity risks and cyber incidents could adversely affect our business, disrupt operations and expose us to
liabilities to tenants, employees, capital providers and other third parties.
We use information technology and other computer resources to carry out important operational activities and
to maintain our business records. As part of our normal business activities, we collect and store certain personal
identifying and confidential information relating to our tenants, employees, vendors and suppliers, and maintain
operational and financial information related to our business. We have implemented systems and processes intended to
address ongoing and evolving cybersecurity risks, secure our information technology, applications and computer systems,
and prevent unauthorized access to or loss of sensitive, confidential and personal data. Although we and our service
providers employ what we believe are adequate security, disaster recovery and other preventative and corrective
measures, our security measures, taken as a whole, may not be sufficient for all possible situations and may be vulnerable
to, among other things, hacking, ransomware, employee error, system error, and faulty password management.
Additionally, information technology security breaches may go undetected and persist as a latent threat to our security
measures.
22
22
Our ability to conduct our business may be impaired if our information technology resources, including our
websites or e-mail systems, are compromised, degraded, damaged or fail, whether due to a virus or other harmful
circumstance, intentional penetration or disruption of our information technology resources by a third party, natural
disaster, hardware or software corruption or failure or error or poor product or vendor/developer selection (including a
failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure,
service provider error or failure, intentional or unintentional personnel actions, or lost connectivity to our networked
resources. A significant and extended disruption could damage our reputation and cause us to lose tenants and revenues;
result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying
and confidential information; and require us to incur significant expenses to address and remediate or otherwise resolve
these kinds of issues. The release of confidential information may also lead to litigation or other proceedings against us by
affected individuals, business partners and/or regulators, and the outcome of such proceedings, which could include
losses, penalties, fines, injunctions, expenses and charges recorded against our earnings and cause us reputational harm,
could have a material and adverse effect on our business and consolidated financial statements. In addition, the costs of
maintaining adequate protection against data security threats, based on considerations of their evolution, increasing
sophistication, pervasiveness and frequency and/or government-mandated standards or obligations regarding protective
efforts, could be material to our consolidated financial statements in a particular period or over various periods.
We may amend or revise our business policies without your approval.
Our Board of Directors may amend or revise our operating policies without stockholder approval. Our
investment, financing and borrowing policies and policies with respect to all other activities, such as growth, debt,
capitalization and operations, are determined by the Board of Directors or those committees or officers to whom the Board
of Directors has delegated that authority. The Board of Directors may amend or revise these policies at any time and from
time to time at its discretion. A change in these policies could adversely affect our financial condition and results of
operations, and the market price of our securities.
Item 1B. Unresolved Staff Comments
We have received no written comments from the Securities and Exchange Commission staff regarding our
periodic or current reports in the 180 days preceding December 31, 2022 that remain unresolved.
Item 2. Properties
Overview
As of December 31, 2022, the Company is the owner and operator and developer of a real estate portfolio
composed of 57 operating properties, totaling approximately 9.8 million square feet of gross leasable area (“GLA”), and
four development properties. The properties are located primarily in the Washington, D.C./Baltimore, Maryland
metropolitan area. The operating property portfolio is composed of 50 neighborhood and community Shopping Centers,
and seven predominantly Mixed-Use Properties totaling approximately 7.9 million and 1.9 million square feet of GLA,
respectively. One property, Seven Corners, accounted for more than 5% of the total gross leasable area. A majority of the
Shopping Centers are anchored by several major tenants and offer primarily day-to-day necessities and services. Thirty-
three of the Shopping Centers were anchored by a grocery store. One tenant, Giant Food (5.1%), a tenant at 11 Shopping
Centers, individually accounted for 2.5% or more of the Company’s total revenue for the year ended December 31, 2022.
The Company expects to hold its properties as long-term investments and it has no maximum period for
retention of any investment. It plans to selectively acquire additional income-producing properties and to expand,
renovate, and improve its properties when circumstances warrant. See “Item 1. Business—Operating Strategies” and
“Business—Capital Policies.”
23
23
The Shopping Centers
Community and neighborhood shopping centers typically are anchored by one or more grocery stores,
discount department stores or drug stores. These anchors offer day-to-day necessities rather than apparel and luxury goods
and, therefore, generate consistent local traffic. By contrast, regional malls generally are larger and typically are anchored
by one or more full-service department stores.
In general, the Shopping Centers are seasoned community and neighborhood shopping centers located in well
established, highly developed, densely populated, middle and upper income areas. The 2022 average estimated
population within a one- and three-mile radius of the Shopping Centers is approximately 15,700 and 82,900, respectively.
The 2022 average household income within a one- and three-mile radius of the Shopping Centers is approximately
$146,300 and $153,200, respectively, compared to a national average of $105,000. Because the Shopping Centers
generally are located in highly developed areas, management believes that there is little likelihood that significant
numbers of competing centers will be developed in the future.
The Shopping Center properties range in size from approximately 19,000 to 573,500 square feet of GLA, with
six in excess of 300,000 square feet, and average approximately 157,500 square feet.
Lease Expirations of Shopping Center Properties
The following table sets forth, by year of expiration, the aggregate amount of base rent and leasable area for
leases in place at the Shopping Centers that the Company owned as of December 31, 2022, for each of the next ten years
beginning with 2023, assuming that none of the tenants exercise renewal options and excluding an aggregate of 414,529
square feet of unleased space, which represented 5.3% of the GLA of the Shopping Centers as of December 31, 2022.
Lease Expirations of Shopping Center Properties
Leasable
Area
Represented
by Expiring
Leases
Percentage of
Leasable Area
Represented by
Expiring
Leases
Annual Base
Rent Under
Expiring
Leases (1)
924,693
1,028,183
1,201,914
823,875
876,884
801,400
584,294
81,757
303,523
333,011
503,267
7,462,801
sf
sf
11.7 % $ 16,030,078
22,058,759
13.1 %
23,392,874
15.3 %
16,689,434
10.4 %
18,341,044
11.1 %
10,387,558
10.2 %
9,332,143
7.4 %
2,717,962
1.0 %
5,930,630
3.9 %
4,132,462
4.2 %
6.4 %
10,042,525
94.7 % $ 139,055,469
Percentage
of Annual
Base Rent
Under
Expiring
Leases
Annual
Base Rent
per Square
Foot
11.5 % $
15.9 %
16.8 %
12.0 %
13.2 %
7.5 %
6.7 %
1.9 %
4.3 %
3.0 %
7.2 %
100.0 %
17.34
21.45
19.46
20.26
20.92
12.96
15.97
33.24
19.54
12.41
19.95
18.63
Year of
Lease
Expiration
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Thereafter
Total
(1)
Calculated using annualized contractual base rent payable as of December 31, 2022 for the expiring GLA,
excluding expenses payable by or reimbursable from tenants.
24
24
The Mixed-Use Properties
All of the Mixed-Use Properties are located in the Washington, D.C. metropolitan area and contain an
aggregate GLA of approximately 1.9 million square feet, comprised of 1.0 million and 0.1 million square feet of office
and retail space, respectively, and 1,006 apartments. The Mixed-Use Properties represent three distinct styles of facilities,
are located in differing commercial environments with distinctive demographic characteristics, and are geographically
removed from one another. Accordingly, management believes that the Washington, D.C. area Mixed-Use Properties
compete for tenants in different commercial and geographic sub-markets of the metropolitan Washington, D.C. market
and do not compete with one another.
Lease Expirations of Mixed-Use Properties
The following table sets forth, by year of expiration, the aggregate amount of base rent and leasable area for
commercial leases in place at the Mixed-Use Properties that the Company owned as of December 31, 2022, for each of
the next ten years beginning with 2023, assuming that none of the tenants exercise renewal options and excluding an
aggregate of 198,548 square feet of unleased office and retail space, which represented 17.5% of the GLA of the
commercial space within the Mixed-Use Properties as of December 31, 2022.
Commercial Lease Expirations of Mixed-Use Properties
Leasable
Area
Represented
by Expiring
Leases
Percentage of
Leasable Area
Represented by
Expiring
Leases
Annual Base
Rent Under
Expiring
Leases (1)
Percentage
of Annual
Base Rent
Under
Expiring
Leases
Annual
Base Rent
per Square
Foot
102,137
110,253
60,155
77,759
85,272
47,824
33,621
40,911
151,256
10,815
218,334
938,337
sf
sf
9.0 % $ 3,000,706
5,246,508
9.7 %
2,253,269
5.3 %
3,210,681
6.8 %
2,087,726
7.5 %
1,265,751
4.2 %
794,741
3.0 %
1,948,237
3.6 %
2,737,879
13.3 %
0.9 %
236,944
10,834,706
19.2 %
82.5 % $ 33,617,148
8.9 % $
15.6 %
6.7 %
9.6 %
6.2 %
3.8 %
2.4 %
5.8 %
8.1 %
0.7 %
32.2 %
100.0 %
29.38
47.59
37.46
41.29
24.48
26.47
23.64
47.62
18.10
21.91
49.62
35.83
Year of Lease
Expiration
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Thereafter
Total
(1)
Calculated using annualized contractual base rent payable as of December 31, 2022, for the expiring GLA,
excluding expenses payable by or reimbursable from tenants.
As of December 31, 2022, the Company had 967 apartment leases, 859 of which will expire in 2023 and
108 of which will expire in 2024. Annual base rent due under these leases is $20.2 million and $0.8 million for the years
ending December 31, 2023 and 2024, respectively.
25
25
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9
2
Item 3. Legal Proceedings
In the normal course of business, the Company is involved in litigation, including litigation arising out
of the collection of rents, the enforcement or defense of the priority of its security interests, and the continued
development and marketing of certain of its real estate properties. In the opinion of management, litigation that is
currently pending should not have a material adverse impact on the financial condition or future operations of the
Company.
Item 4. Mine Safety Disclosures
Not applicable.
30
30
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Shares of Saul Centers common stock are listed on the New York Stock Exchange under the symbol
“BFS.”
Holders
The approximate number of holders of record of the common stock was 146 as of February 23, 2023.
Many of our shares of common stock are held by brokers and institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these record holders.
Dividends and Distributions
Under the Code, REITs are subject to numerous organizational and operating requirements, including
the requirement to distribute at least 90% of REIT taxable income. The Company distributed more than the required
amount in 2022 and 2021. See Notes to Consolidated Financial Statements, No. 13, “Distributions.” The Company
may or may not elect to distribute in excess of 90% of REIT taxable income in future years.
The Company’s estimate of cash flow available for distributions is believed to be based on reasonable
assumptions and represents a reasonable basis for setting distributions. However, the actual results of operations of
the Company will be affected by a variety of factors, including but not limited to actual rental revenue, operating
expenses of the Company, interest expense, general economic conditions, federal, state and local taxes (if any),
unanticipated capital expenditures, the adequacy of reserves and preferred dividends. While the Company intends to
continue paying regular quarterly distributions, any future payments will be determined solely by the Board of
Directors and will depend on a number of factors, including cash flow of the Company, its financial condition and
capital requirements, the annual distribution amounts required to maintain its status as a REIT under the Code, and
such other factors as the Board of Directors deems relevant. We are obligated to pay regular quarterly distributions
to holders of preferred depositary shares, prior to distributions on the common stock.
Acquisition of Equity Securities by the Saul Organization
Through participation in the Company’s Dividend Reinvestment Plan, during the quarter ended
December 31, 2022, (a) B. Francis Saul II, the Company’s Chairman of the Board and Chief Executive Officer and
(b) his spouse, acquired an aggregate of 3,287 shares of common stock at an average price of $39.70 per share, in
respect of the October 31, 2022 dividend distribution.
No shares were acquired pursuant to a publicly announced plan or program.
31
31
Performance Graph
Rules promulgated under the Exchange Act require the Company to present a graph comparing the
cumulative total stockholder return on its Common Stock with the cumulative total stockholder return of (i) a broad
equity market index, and (ii) a published industry index or peer group. The following graph compares the
cumulative total stockholder return of the Company’s common stock, based on the market price of the common
stock and assuming reinvestment of dividends, with the Financial Times Stock Exchange Group National
Association of Real Estate Investment Trust Equity Index (“FTSE NAREIT Equity”), the S&P 500 Index (“S&P
500”) and the Russell 2000 Index (“Russell 2000”). The graph assumes the investment of $100 on December 31,
2017.
Cumulative Total Return
d
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$200
$175
$150
$125
$100
$75
$50
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
Saul Centers, Inc.
FTSE NAREIT Equity
S&P 500
Russell 2000
Period Ended
Index
Saul Centers, Inc. 1
S&P 500 2
Russell 2000 3
FTSE NAREIT Equity 4
12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022
$100.00
$100.00
$100.00
$100.00
$79.52
$95.62
$88.99
$95.38
$93.34
$125.34
$111.70
$120.17
$59.67
$148.85
$134.00
$110.56
$104.57
$191.58
$153.85
$158.36
$84.32
$156.85
$122.37
$119.83
1 Source: S&P Capital I.Q.
2 Source: Bloomberg
3 Source: FTSE Russell
4 Source: FTSE National Association of Real Estate Investment Trusts
32
32
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
begins with the Company’s primary business strategy to give the reader an overview of the goals of the Company’s
business. This is followed by a discussion of the critical accounting policies that the Company believes are
important to understanding the assumptions and judgments incorporated in the Company’s reported financial results.
The next section discusses the Company’s results of operations for the past two years. Beginning on page 43, the
Company provides an analysis of its liquidity and capital resources, including discussions of its cash flows, debt
arrangements, sources of capital and financial commitments. On page 49, the Company discusses funds from
operations, or FFO, which is a non-GAAP financial measure of performance of an equity REIT used by the REIT
industry.
The following discussion and analysis should be read in conjunction with the Consolidated Financial
Statements and related footnotes included elsewhere in this Annual Report on Form 10-K. We make statements in
this section that are forward-looking statements within the meaning of the federal securities laws. For a complete
discussion of forward-looking statements, see the section in this report entitled "Forward-Looking Statements."
Certain risks may cause our actual results, performance or achievements to differ materially from those expressed or
implied by the following discussion. For a discussion of such risk factors, see "Item 1A. Risk Factors."
Impact of COVID-19
If the effects of COVID-19 result in deterioration of economic and market conditions, including supply
chain issues, or if the Company’s expected holding period for assets changes, subsequent tests for impairment could
result in impairment charges in the future. The Company can provide no assurance that material impairment charges
with respect to the Company’s investment properties will not occur during future periods. As of December 31,
2022, we have not identified any impairment triggering events, including the impact of COVID-19 and
corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, no impairment charges
have been recorded. However, we have yet to see the long-term effects of COVID-19 and the extent to which it may
impact our tenants in the future. Indications of a tenant’s inability to continue as a going concern, changes in our
view or strategy relative to a tenant’s business or industry as a result of COVID-19, or changes in our long-term hold
strategies, could be indicative of an impairment triggering event. Accordingly, the Company will continue to
monitor circumstances and events in future periods to determine whether impairment charges are warranted.
As of January 31, 2023, payments by tenants of contractual base rent and operating expense and real
estate tax recoveries for the 2022 fourth quarter totaled approximately 98.6%.
The Company is and will continue to be actively engaged in collection efforts related to uncollected
rent, and the Company will continue to work with certain tenants who request rent deferrals, however, the Company
can provide no assurance that such efforts or our efforts in future periods will be successful.
Deferral agreements executed with certain tenants as a result of business disruption that occurred at the
onset of the COVID-19 pandemic generally deferred 30 to 90 days of rent, operating expense and real estate tax
recovery payments until a later time in the lease term with repayment typically occurring over a 12-month period
generally commencing in 2021. We continued to accrue rental revenue during the deferral period.
33
33
The following is a summary of the Company’s executed rent deferral agreements and repayments as of
January 31, 2023, with the exception of amounts due, which are as of December 31, 2022.
(Dollars in thousands)
Rent Deferral Agreements
Total
Deferred Rent
$
9,366 $
Amount Due
Amount
Written Off
8,353 $
318 $
Amount
Unpaid
Amount
Collected
33 $ 8,002
Collection
Percentage
(based on
payments
currently due)
96 %
The extent of the effects of COVID-19 on the Company’s business, results of operations, cash flows,
and growth prospects is highly uncertain and will ultimately depend on future developments, none of which can be
predicted with any certainty. See Item 1A. Risk Factors. Management and the Board of Directors will continue to
actively monitor the effects of the COVID-19 pandemic, including governmental directives in the jurisdictions in
which we operate and the recommendations of public health authorities, and will, as needed, take further measures
to adapt the Company’s business in the best interests of our stockholders and personnel. The extent to which
COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the
actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the
outbreak and containment measures, among others.
We anticipate that some tenants eventually will not be able to pay amounts due and we will incur losses against
our rent receivables. The extent and timing of the recognition of such losses will depend on future developments,
which are highly uncertain and cannot be predicted. Management considers reserves established as of December 31,
2022, against such potential losses to be reasonable and adequate. Rent collections during the fourth quarter and rent
relief requests to-date may not be indicative of collections or requests in any future period.
Overview
The Company’s primary strategy is to continue to focus on diversification of its assets through
development of transit-oriented, residential mixed-use projects in the Washington, D.C. metropolitan area. The
Company’s operating strategy also includes improvement of the operating performance of its assets, internal growth
of its Shopping Centers through the addition of pad sites, and supplementing its development pipeline with selective
redevelopment and renovations of its core Shopping Centers. The Company has a pipeline of entitled sites in its
portfolio, some of which are currently shopping center operating properties, for development of up to 3,700
apartment units and 975,000 square feet of retail and office space. All such sites are located adjacent to WMATA
red line Metro stations in Montgomery County, Maryland.
The Company intends to selectively add free-standing pad site buildings within its Shopping Center
portfolio, and replace underperforming tenants with tenants that generate strong traffic, including anchor stores such
as supermarkets and drug stores. The Company has executed leases or leases are under negotiation for seven more
pad sites.
In recent years, there has been a limited amount of quality properties for sale and pricing of those
properties has escalated. Accordingly, management believes acquisition opportunities for investment in existing and
new shopping center and mixed-use properties in the near future is uncertain. Nevertheless, because of the
Company’s conservative capital structure, including its cash and capacity under its revolving credit facility,
management believes that the Company is positioned to take advantage of additional investment opportunities as
attractive properties are identified and market conditions improve. (See “Item 1. Business - Capital Policies”.) It is
management’s view that several of the sub-markets in which the Company operates have, or are expected to have in
the future, attractive supply/demand characteristics. The Company will continue to evaluate acquisition,
development and redevelopment as integral parts of its overall business plan.
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34
Prior to the COVID-19 pandemic, economic conditions within the local Washington, DC metropolitan
area had remained relatively stable. Issues facing the Federal government relating to taxation, spending and interest
rate policy will likely continue to impact the office, retail and residential real estate markets over the coming years.
Because the majority of the Company’s property operating income is produced by our Shopping Centers, we
continually monitor the implications of government policy changes, as well as shifts in consumer demand between
on-line and in-store shopping, on future shopping center construction and retailer store expansion plans. Based on
our observations, we continue to adapt our marketing and merchandising strategies in ways to maximize our future
performance. The Company's commercial leasing percentage, on a same property basis, which excludes the impact
of properties not in operation for the entirety of the comparable periods, increased to 93.2% at December 31, 2022,
from 92.0% at December 31, 2021.
The Company maintains a ratio of total debt to total asset value of under 50%, which allows the
Company to obtain additional secured borrowings if necessary. As of December 31, 2022, including $100.0 million
of hedged variable-rate debt, total fixed-rate debt with staggered maturities from 2023 to 2041 represented
approximately 86.8% of the Company’s notes payable, thus minimizing refinancing risk. The Company’s unhedged
variable-rate debt consists of $164.0 million outstanding under the Credit Facility. As of December 31, 2022, the
Company has availability of approximately $212.1 million under its Credit Facility.
Although it is management’s present intention to concentrate future acquisition and development
activities on transit-centric, primarily residential mixed-use properties in the Washington, D.C./Baltimore
metropolitan area, the Company may, in the future, also acquire other types of real estate in other areas of the
country as opportunities present themselves. The Company plans to continue to diversify in terms of property types,
locations, size and market, and it does not set any limit on the amount or percentage of assets that may be invested in
any one property or any one geographic area.
The following table sets forth average annualized base rent per square foot and average annualized
effective rent per square foot for the Company's commercial properties (all properties except for the apartments
within The Waycroft, Clarendon Center and Park Van Ness properties). For purposes of this table, annualized
effective rent is annualized base rent minus amortized tenant improvements and amortized leasing commissions.
Commercial Rents
Year ended December 31,
2022
2021
2020
Base rent
$ 20.55 $ 20.63 $ 19.97
Effective rent $ 18.95 $ 18.91 $ 18.25
Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States (“GAAP”), which requires management to make certain estimates and
assumptions that affect the reporting of financial position and results of operations. See Note 2 to the Consolidated
Financial Statements in this report. The Company has identified the following policies that, due to estimates and
assumptions inherent in those policies, involve a relatively high degree of judgment and complexity.
Real Estate Investments
Real estate investment properties are stated at historic cost less depreciation. Although the Company
intends to own its real estate investment properties over a long term, from time to time it will evaluate its market
position, market conditions, and other factors and may elect to sell properties that do not conform to the Company’s
investment profile. Management believes that the Company’s real estate assets have generally appreciated in value
since their acquisition or development and, accordingly, the aggregate current value exceeds their aggregate net
book value and also exceeds the value of the Company’s liabilities as reported in the financial statements. Because
the financial statements are prepared in conformity with GAAP, they do not report the current value of the
Company’s real estate investment properties.
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35
If there is an event or change in circumstance that indicates a potential impairment in the value of a real
estate investment property, the Company prepares an analysis to determine whether the carrying value of the real
estate investment property exceeds its estimated fair value. The Company considers both quantitative and
qualitative factors in identifying impairment indicators including recurring operating losses, significant decreases in
occupancy, and significant adverse changes in market conditions, legal factors and business climate. If impairment
indicators are present, the Company compares the projected cash flows of the property over its remaining useful life,
on an undiscounted basis, to the carrying value of that property. The Company assesses its undiscounted projected
cash flows based upon estimated capitalization rates, historic operating results and market conditions that may affect
the property. If the carrying value is greater than the undiscounted projected cash flows, the Company would
recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its then estimated
fair value. The fair value of any property is sensitive to the actual results of any of the aforementioned estimated
factors, either individually or taken as a whole. Should the actual results differ from management’s projections, the
valuation could be negatively or positively affected.
Accounts Receivable, Accrued Income, and Allowance for Doubtful Accounts
Accounts receivable primarily represent amounts currently due from tenants in accordance with the
terms of their respective leases. Individual leases are assessed for collectability and, upon the determination that the
collection of rents is not probable, accrued rent and accounts receivable are charged off, and the charge off is
reflected as an adjustment to rental revenue. Revenue from leases where collection is not probable is recorded on a
cash basis until collectability is determined to be probable. We also assess whether operating lease receivables, at
the portfolio level, are appropriately valued based upon an analysis of balances outstanding, effects of tenant
bankruptcies, historical levels of bad debt and current economic trends. Additionally, because of the uncertainties
related to the impact of the COVID-19 pandemic, our assessment also takes into consideration the types of business
conducted by tenants and current discussions with the tenants, as well as recent rent collection experience.
Evaluating and estimating uncollectable lease payments and related receivables requires a significant amount of
judgment by management and is based on the best information available to management at the time of evaluation.
Actual results could differ from these estimates.
Legal Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business, which are generally covered by insurance. While the resolution of these matters cannot be predicted with
certainty, the Company believes the final outcome of current matters will not have a material adverse effect on its
financial position or the results of operations. Upon determination that a loss is probable to occur, the estimated
amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its
occurrence is considered probable can be difficult to determine.
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36
Results of Operations
The following is a discussion of the components of revenue and expense for the entire Company. This
section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions
of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be
found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on
February 24, 2022.
Revenue
(Dollars in thousands)
Year ended December 31,
Percentage Change
Base rent
Expense recoveries
Percentage rent
Other property revenue
Credit (losses) recoveries on operating lease
receivables, net
Rental revenue
Other revenue
Total revenue
NM = Not Meaningful
2020
2022
2021
$ 201,182 $ 197,930 $ 188,636
34,678
927
1,252
36,025
1,632
1,910
34,500
1,504
1,393
88
240,837
5,023
(5,212)
220,281
4,926
$ 245,860 $ 239,225 $ 225,207
(812)
234,515
4,710
2022 from
2021
2021 from
2020
1.6 %
4.4 %
8.5 %
37.1 %
NM
2.7 %
6.6 %
2.8 %
4.9 %
(0.5) %
62.2 %
11.3 %
NM
6.5 %
(4.4) %
6.2 %
Total revenue increased 2.8% in 2022 compared to 2021 as described below.
Base rent
The $3.3 million increase in base rent in 2022 compared to 2021 was primarily attributable to increased
rental rates, lower vacancy and lower concessions at The Waycroft, which had a total impact of $2.8 million.
Expense recoveries
The $1.5 million increase in expense recoveries in 2022 compared to 2021 is primarily attributable to an
increase in recoverable property operating expenses.
Other property revenue
The $0.5 million increase in 2022 compared to 2021 is primarily attributable to (a) higher late fees and
interest charges of $0.3 million and (b) higher residential move-in fees of $0.1 million.
Credit (losses) recoveries on operating lease receivables, net
Credit (losses) recoveries on operating lease receivables, net during 2022 decreased $0.9 million from
2021. The decrease, which increases income, is primarily due to higher collections in 2022 of previously reserved
lease receivables.
Other Revenue
Other revenue increased $0.3 million primarily due to (a) higher parking revenue of $0.6 million,
partially offset by (b) lower lease termination fees of $0.3 million.
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37
Expenses
(Dollars in thousands)
Property operating expenses
Real estate taxes
Interest expense, net and amortization of
deferred debt costs
Depreciation and amortization of deferred
leasing costs
General and administrative
Loss on early extinguishment of debt
Total expenses
NM = Not Meaningful
Year ended December 31,
Percentage Change
2022
2021
2020
2022 from
2021
2021 from
2020
$ 35,934 $ 32,881 $ 28,857
28,588
28,747
29,560
9.3 %
(0.6) %
13.9 %
(2.8) %
43,937
45,424
46,519
(3.3) %
(2.4) %
48,969
22,392
648
50,272
20,252
—
51,126
19,107
—
$ 180,468 $ 177,576 $ 175,169
(2.6) %
10.6 %
NM
1.6 %
(1.7) %
6.0 %
NM
1.4 %
Total expenses increased 1.6% in 2022 compared to 2021 as described below.
Property operating expenses
Property operating expenses increased $3.1 million in 2022 compared to 2021 primarily due to
(a) increased repairs and maintenance costs across the portfolio of $1.7 million, (b) higher property employee costs
of $0.4 million, (c) increased utilities across the portfolio of $0.3 million, (d) higher parking expenses in the Mixed-
Use portfolio of $0.3 million, and (e) higher real estate tax appeal fees across the portfolio of $0.2 million.
Interest expense, net and amortization of deferred debt costs
Interest expense, net and amortization of deferred debt costs decreased $1.5 million in 2022 compared
to 2021 primarily due to (a) higher capitalization of interest of $4.4 million related to Twinbrook and Hampden
House, (b) lower interest incurred of $2.0 million due to a lower weighted average rate over the period, and (c) the
extinguishment of the finance lease liability related to the land underlying the leasehold interest for Twinbrook of
$0.4 million, partially offset by (d) higher interest incurred of $5.2 million due to higher average outstanding debt
balances over the period.
Depreciation and amortization of deferred leasing costs
Depreciation and amortization of deferred leasing costs decreased $1.3 million in 2022 compared to
2021 primarily due to (a) lower depreciation expense of $0.8 million during the period and (b) lower amortization of
deferred leasing costs of $0.5 million during the period.
General and administrative
General and administrative costs increased $2.1 million in 2022 compared to 2021 primarily due to
(a) higher employee costs of $1.3 million and (b) higher loan administration costs of $0.7 million.
Loss on early extinguishment of debt
Loss on early extinguishment of debt increased $0.6 million due to the early refinance of loans at Great
Falls Center and Village Center.
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38
Same property revenue and same property operating income
Same property revenue and same property operating income are non-GAAP financial measures of
performance and improve the comparability of these measures by excluding the results of properties which were not
in operation for the entirety of the comparable reporting periods.
We define same property revenue as total revenue minus the revenue of properties not in operation for
the entirety of the comparable reporting periods, and we define same property operating income as net income plus
(a) interest expense, net and amortization of deferred debt costs, (b) depreciation and amortization of deferred
leasing costs, (c) general and administrative expenses, (d) change in fair value of derivatives, and (e) loss on the
early extinguishment of debt minus (f) gains on sale of property and (g) the operating income of properties that were
not in operation for the entirety of the comparable periods.
Other REITs may use different methodologies for calculating same property revenue and same property
operating income. Accordingly, our same property revenue and same property operating income may not be
comparable to those of other REITs.
Same property revenue and same property operating income are used by management to evaluate and
compare the operating performance of our properties, and to determine trends in earnings, because these measures
are not affected by the cost of our funding, the impact of depreciation and amortization expenses, gains or losses
from the acquisition and sale of operating real estate assets, general and administrative expenses or other gains and
losses that relate to ownership of our properties. We believe the exclusion of these items from revenue and
operating income is useful because the resulting measures capture the actual revenue generated and actual expenses
incurred by operating our properties.
Same property revenue and same property operating income are measures of the operating performance
of our properties but do not measure our performance as a whole. Such measures are therefore not substitutes for
total revenue, net income or operating income as computed in accordance with GAAP.
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39
The tables below provide reconciliations of property revenue and property operating income under
GAAP to same property revenue and same property operating income for the indicated periods. No properties were
excluded from same property results for the 2022 Period.
Same property revenue
(in thousands)
Total revenue
Less: Acquisitions, dispositions and development
properties
Total same property revenue
Shopping centers
Mixed-Use properties
Total same property revenue
Total Shopping Center revenue
Less: Shopping Center acquisitions, dispositions and
development properties
Total same Shopping Center revenue
Total Mixed-Use property revenue
Less: Mixed-Use acquisitions, dispositions and
development properties
Total same Mixed-Use revenue
Year ended December 31,
2022
2021
$
245,860 $
239,225
—
—
245,860 $
239,225
172,055 $
169,681
73,805
69,544
245,860 $
239,225
172,055 $
169,681
—
—
172,055 $
169,681
73,805 $
69,544
—
—
73,805 $
69,544
$
$
$
$
$
$
$
The $6.6 million increase in same property revenue in 2022 compared to 2021 was primarily due to
(a) higher base rent of $3.4 million, (b) higher expense recoveries of $1.5 million, (c) lower credit losses on
operating lease receivables of $0.7 million and (d) higher other property revenue of $0.5 million.
Mixed-Use same property revenue is composed of the following:
(In thousands)
Office mixed-use properties (1)
Year Ended December 31,
2022
2021
$
37,845 $
37,561
Residential mixed-use properties (retail activity) (2)
Residential mixed-use properties (residential activity) (3)
3,984
31,976
Total Mixed-Use same property revenue
$
73,805 $
3,530
28,453
69,544
(1)
(2)
(3)
Includes Avenel Business Park, Clarendon Center – North and South Blocks, 601 Pennsylvania Avenue
and Washington Square
Includes The Waycroft and Park Van Ness
Includes Clarendon South Block, The Waycroft and Park Van Ness
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40
Same property operating income
(In thousands)
Net income
Add: Interest expense, net and amortization of deferred debt
costs
Add: Depreciation and amortization of deferred leasing costs
Add: General and administrative
Add: Loss on early extinguishment of debt
Property operating income
Year Ended December 31,
2022
2021
$
65,392 $
61,649
43,937
48,969
22,392
648
45,424
50,272
20,252
—
181,338
177,597
Less: Acquisitions, dispositions and development properties
—
—
Total same property operating income
Shopping Centers
Mixed-Use properties
Total same property operating income
Shopping Center operating income
Less: Shopping Center acquisitions, dispositions and
development properties
Total same Shopping Center operating income
Mixed-Use property operating income
Less: Mixed-Use acquisitions, dispositions and development
properties
Total same Mixed-Use property operating income
$
$
$
$
$
$
$
181,338 $
177,597
135,160 $
133,897
46,178
43,700
181,338 $
177,597
135,160 $
133,897
—
—
135,160 $
133,897
46,178 $
43,700
—
—
46,178 $
43,700
During the year ended 2022, Shopping Center same property operating income increased 0.9% and
Mixed-Use same property operating income increased 5.7%. Shopping Center same property operating income
increased primarily due to higher base rent of $1.2 million. Mixed-Use same property operating income increased
primarily due to (a) higher base rent of $2.2 million and (b) higher parking income, net of expenses of $0.3 million.
Mixed-Use same property operating income is composed of the following:
(In thousands)
Office mixed-use properties (1)
Year Ended December 31,
2022
2021
$
24,367 $
24,545
Residential mixed-use properties (retail activity) (2)
Residential mixed-use properties (residential activity) (3)
2,917
18,894
Total Mixed-Use same property operating income
$
46,178 $
2,658
16,497
43,700
(1)
(2)
(3)
Includes Avenel Business Park, Clarendon Center – North and South Blocks, 601 Pennsylvania Avenue
and Washington Square
Includes The Waycroft and Park Van Ness
Includes Clarendon South Block, The Waycroft and Park Van Ness
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41
Impact of Inflation
The impact of rising operating expenses due to inflation on the operating performance of the Company’s
portfolio is partially mitigated by terms in substantially all of the Company’s leases, which contain provisions
designed to increase revenues to offset the adverse impact of inflation on the Company’s results of operations. These
provisions include upward periodic adjustments in base rent due from tenants, usually based on a stipulated increase,
and, to a lesser extent, on the change in the consumer price index, commonly referred to as the CPI.
In addition, substantially all of the Company’s properties are leased to tenants under long-term leases,
which provide for reimbursement of operating expenses by tenants. These leases tend to reduce the Company’s
exposure to rising property expenses due to inflation. Inflation and increased costs may have an adverse impact on
the Company’s tenants if increases in their operating expenses exceed increases in their revenue.
Liquidity and Capital Resources
Cash and cash equivalents were $13.3 million and $14.6 million at December 31, 2022 and 2021,
respectively. The changes in cash and cash equivalents during the years ended December 31, 2022 and 2021 were
attributable to operating, investing and financing activities, as described below.
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Decrease in cash and cash equivalents
Year Ended December 31,
2022
2021
$ 121,151 $ 118,427
(116,888)
(5,578)
(55,918)
(74,771)
$
(1,315) $
(12,262)
Operating Activities
Net cash provided by operating activities represents cash received primarily from rental revenue, plus
other revenue, less property operating expenses, leasing costs, normal recurring general and administrative expenses
and interest payments on outstanding debt.
Investing Activities
Net cash used in investing activities includes property acquisitions, developments, redevelopments,
tenant improvements and other property capital expenditures. The $61.0 million increase in cash used in investing
activities is primarily due to (a) higher development expenditures of $75.2 million, partially offset by (b) lower
acquisitions of real estate investments of $9.0 million and (c) lower additions to real estate investments throughout
the portfolio of $5.2 million.
Financing Activities
Net cash used in financing activities represents (a) cash received from loan proceeds and issuance of
common stock, preferred stock and limited partnership units minus (b) cash used to repay and curtail loans, redeem
preferred stock and pay dividends and distributions to holders of common stock, preferred stock and limited
partnership units. See Note 5 to the Consolidated Financial Statements for a discussion of financing activity.
Liquidity Requirements
Short-term liquidity requirements consist primarily of normal recurring operating expenses and capital
expenditures, debt service requirements (including debt service relating to additional and replacement debt),
distributions to common and preferred stockholders, distributions to unit holders and amounts required for
expansion and renovation of the Current Portfolio Properties and selective acquisition and development of additional
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42
properties. In order to qualify as a REIT for federal income tax purposes, the Company must distribute to its
stockholders at least 90% of its “real estate investment trust taxable income,” as defined in the Code. The Company
expects to meet these short-term liquidity requirements (other than amounts required for additional property
acquisitions and developments) through cash provided from operations, available cash and its existing line of credit.
The Company is developing Twinbrook Quarter Phase I (“Phase I”) located in Rockville, Maryland.
Phase I includes an 80,000 square foot Wegmans, approximately 25,000 square feet of small shop space,
450 apartments and a 230,000 square foot office building. The office tower portion of Phase I is not being
constructed at this time. In connection with the development of the residential and retail portions of Phase I, we
must also invest in infrastructure and other items that will support both Phase I and other portions of the
development of Twinbrook Quarter. The total cost of the project is expected to be approximately $331.5 million, of
which $271.4 million is related to the development of the residential and retail portions of Phase I and $60.1 million
is related to infrastructure and other items. A portion of the project will be financed by a $145.0 million
construction-to-permanent loan. Construction of the structure is ongoing. Concrete is being poured at the 12th level
above ground, which is the final above ground level of the residential and retail portions of Phase I. Initial delivery
of Phase I is anticipated in late 2024. The development potential of all phases of the entire 18.4 acre Twinbrook
Quarter site totals 1,865 residential units, 473,000 square feet of retail space, and 431,000 square feet of office
space.
The Company is developing Hampden House, a project located in downtown Bethesda, Maryland that
will include up to 366 apartment units and 10,100 square feet of retail space. The total cost of the project is expected
to be approximately $246.4 million, a portion of which will be financed by a $133.0 million construction-to-
permanent loan. Excavation is complete and below grade construction of foundation systems is in progress.
Construction is expected to be completed during 2025.
Long-term liquidity requirements consist primarily of obligations under our long-term debt and
dividends paid to our preferred shareholders. The Company anticipates that long-term liquidity requirements will
also include amounts required for property acquisitions and developments. The Company may also redevelop
certain of the Current Portfolio Properties and may develop additional freestanding outparcels or expansions within
certain of the Shopping Centers. Acquisition and development of properties are undertaken only after careful
analysis and review, and management’s determination that such properties are expected to provide long-term
earnings and cash flow growth. During the coming year, developments, expansions or acquisitions (if any) are
expected to be funded with available cash, bank borrowings from the Company’s credit line, construction and
permanent financing, proceeds from the operation of the Company’s Dividend Reinvestment Plan (“DRIP”) or other
external debt or equity capital resources available to the Company. Any future borrowings may be at the Saul
Centers, Operating Partnership or Subsidiary Partnership level, and securities offerings may include (subject to
certain limitations) the issuance of additional limited partnership interests in the Operating Partnership which can be
converted into shares of Saul Centers common stock. The availability and terms of any such financing will depend
upon market and other conditions.
Contractual Payment Obligations
As of December 31, 2022, the Company had unfunded contractual payment obligations totaling
approximately $258.9 million, excluding operating obligations, due within the next 12 months. The table below
shows the total contractual payment obligations as of December 31, 2022.
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43
(Dollars in thousands)
Notes Payable:
Interest
Scheduled Principal
Balloon Payments
Subtotal
Corporate Headquarters Lease (1)
Development and Predevelopment Obligations
Tenant Improvements
Total Contractual Obligations
Payments Due By Period
One Year or
Less
More Than
One Year
Total
$
50,140 $ 316,355 $ 366,495
320,798
287,872
32,926
917,885
908,660
9,225
1,605,178
1,512,887
92,291
3,498
2,697
801
152,299
31,293
183,592
121,181
107,631
13,550
258,941 $ 1,654,508 $ 1,913,449
$
(1)
See Note 7 to Consolidated Financial Statements. Corporate Headquarters Lease amounts represent an
allocation to the Company based upon employees’ time dedicated to the Company’s business as specified
in the Shared Services Agreement. Future amounts are subject to change as the number of employees
employed by each of the parties to the lease fluctuates.
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44
Dividend Reinvestments
In December 1995, the Company established a Dividend Reinvestment Plan (the “Plan”) to allow its
common stockholders and holders of limited partnership interests an opportunity to buy additional shares of
common stock by reinvesting all or a portion of their dividends or distributions. The Plan provides for investing in
newly issued shares of common stock at a 3% discount from market price without payment of any brokerage
commissions, service charges or other expenses. All expenses of the Plan are paid by the Company. The Company
issued 138,142 and 287,239 shares under the Plan at a weighted average discounted price of $48.56 and $39.17 per
share during the years ended December 31, 2022 and 2021, respectively. The Company issued 26,659 and 61,009
limited partnership units under the Plan at a weighted average price of $49.81 and $39.74 per unit during the years
ended December 31, 2022 and 2021, respectively. The Company also credited 5,815 and 6,376 shares to directors
pursuant to the reinvestment of dividends specified by the Directors’ Deferred Compensation Plan at a weighted
average discounted price of $46.74 and $39.31 per share, during the years ended December 31, 2022 and 2021,
respectively.
Capital Strategy and Financing Activity
As a general policy, the Company intends to maintain a ratio of its total debt to total asset value of 50%
or less and to actively manage the Company’s leverage and debt expense on an ongoing basis in order to maintain
prudent coverage of fixed charges. Asset value is the aggregate fair market value of the Current Portfolio Properties
and any subsequently acquired properties as reasonably determined by management by reference to the properties’
aggregate cash flow. Given the Company’s current debt level, it is management’s belief that the ratio of the
Company’s debt to total asset value was below 50% as of December 31, 2022.
The organizational documents of the Company do not limit the absolute amount or percentage of
indebtedness that it may incur. The Board of Directors may, from time to time, reevaluate the Company’s debt
capitalization policy in light of current economic conditions, relative costs of capital, market values of the Company
property portfolio, opportunities for acquisition, development or expansion, and such other factors as the Board of
Directors then deems relevant. The Board of Directors may modify the Company’s debt capitalization policy based
on such a reevaluation without shareholder approval and may increase or decrease the Company’s debt to total asset
ratio above or below 50% or may waive the policy for certain periods of time. The Company continues to refinance
or renegotiate the terms of its outstanding debt in order to extend maturities and obtain generally more favorable
loan terms, whenever management determines the financing environment is favorable.
The Company's financing activity is described within Note 5 to the Consolidated Financial Statements.
The following is a summary of notes payable as of December 31, 2022 and 2021.
45
45
Notes Payable
(Dollars in thousands)
Lansdowne Town Center
Orchard Park
BJ's Wholesale Club
Great Falls Center
Leesburg Pike Center
Village Center
White Oak
Avenel Business Park
Ashburn Village
Ravenwood
Clarendon Center
Severna Park Marketplace
Kentlands Square II
Cranberry Square
Fixed-rate portion of Credit Facility
Seven Corners
Hampshire-Langley
Beacon Center
Seabreeze Plaza
Great Falls Center
Shops at Fairfax / Boulevard
Northrock
Burtonsville Town Square
Park Van Ness
Washington Square
Broadlands Village
The Glen
Olde Forte Village
Olney
Shops at Monocacy
Ashbrook Marketplace
Kentlands
The Waycroft
Village Center
Beacon Center / Seven Corners
Total fixed rate
Variable rate loans:
Year Ended December 31,
$
2022
— $
—
9,345
—
12,543
—
19,985
22,906
23,039
11,975
86,264
25,857
29,658
13,946
100,000
—
12,231
—
13,302
31,313
23,443
12,652
33,439
62,813
52,030
28,858
20,827
20,136
12,476
26,422
20,807
28,157
152,679
25,057
142,522
1,074,682
2021
28,533
8,812
9,692
8,651
13,213
11,528
20,874
24,108
24,186
12,553
90,600
27,197
31,155
14,634
—
56,413
12,868
32,170
13,897
—
24,398
13,108
34,558
64,661
53,745
29,613
21,393
20,682
12,299
27,143
21,329
28,899
156,116
—
—
949,028
Interest
Rate*
Scheduled
Maturity*
Jun-2022
5.62 %
Sep-2022
6.08 %
Apr-2023
6.43 %
Feb-2024
6.61 %
Jun-2024
7.35 %
Jun-2024
7.60 %
Jul-2024
6.89 %
Jul-2024
7.45 %
Jan-2025
7.30 %
Jan-2026
6.18 %
Apr-2026
5.31 %
4.30 %
Oct-2026
4.53 % Nov-2026
4.70 % Dec-2026
4.38 %
Feb-2027
5.84 % May-2027
Apr-2028
4.04 %
Jun-2028
3.51 %
Sep-2028
3.99 %
3.91 %
Sep-2029
3.69 % Mar-2030
Apr-2030
3.99 %
Feb-2032
3.39 %
4.88 %
Sep-2032
3.75 % Dec-2032
4.41 % Nov-2033
Jan-2034
4.69 %
Feb-2034
4.65 %
Apr-2034
8.00 %
4.14 % Dec-2034
3.80 % Aug-2035
3.43 % Aug-2035
Sep-2035
4.67 %
4.14 % Aug-2037
5.05 %
Oct-2037
4.77 % 8.77 years
Variable-rate portion of Credit Facility
Total variable rate
Total notes payable
164,000
164,000
206,000
206,000
$ 1,238,682 $ 1,155,028
SOFR + 1.50% Aug-2025
5.80 % 2.66 years
4.91 % 7.96 years
*
Totals computed using weighted averages.
46
46
On February 23, 2022, the Company closed on a $133.0 million construction-to-permanent loan, the
proceeds of which will be used to partially fund Hampden House. The loan matures in 2040, bears interest at a fixed
rate of 3.90%, and requires interest only payments, which will be funded by the loan, until conversion to permanent.
The conversion is expected in the first quarter of 2026, and thereafter, monthly principal and interest payments
based on a 25-year amortization schedule will be required.
On March 11, 2022, the Company repaid in full the remaining principal balance of $28.3 million of the
mortgage loan secured by Lansdowne Town Center, which was scheduled to mature in June 2022.
On June 7, 2022, the Company repaid in full the remaining principal balance of $8.6 million of the
mortgage loan secured by Orchard Park, which was scheduled to mature in September 2022.
On August 4, 2022, the Company closed on a 15-year, non-recourse, $25.3 million mortgage secured by
Village Center. The loan matures in 2037, bears interest at a fixed-rate of 4.14%, requires monthly principal and
interest payments of $135,200 based on a 25-year amortization schedule and requires a final payment of
$13.4 million at maturity. Proceeds were used to repay the remaining balance of approximately $11.2 million on the
existing mortgage and reduce the outstanding balance of the Credit Facility. A $0.4 million loss on early
extinguishment of debt was recognized.
On August 23, 2022, the Company entered into two floating-to-fixed interest rate swap agreements to
manage the interest rate risk associated with $100.0 million of its variable-rate debt. Each swap agreement became
effective October 3, 2022 and each has a $50.0 million notional amount. One agreement terminates on October 1,
2027 and effectively fixes SOFR at 2.96%. The other agreement terminates on October 1, 2030 and effectively fixes
SOFR at 2.91%. Because the interest-rate swaps effectively fix SOFR for $100.0 million of variable-rate debt,
unless otherwise indicated, $100.0 million of variable-rate debt will be treated as fixed-rate debt for disclosure
purposes beginning September 30, 2022. The Company has designated the agreements as cash flow hedges for
accounting purposes.
As of December 31, 2022, the fair value of the interest-rate swaps totaled approximately $4.0 million,
which is included in Other assets in the Consolidated Balance Sheets. The increase in value from inception of the
swaps is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.
On August 24, 2022, the Company closed on a 7-year, non-recourse, $31.5 million mortgage secured by
Great Falls Center. The loan matures in 2029, bears interest at a fixed-rate of 3.91%, requires monthly principal and
interest payments of $164,700 based on a 25-year amortization schedule and requires a final payment of
$25.7 million at maturity. Proceeds were used to repay the remaining balance of approximately $8.0 million on the
existing mortgage and reduce the outstanding balance of the Credit Facility. A $0.2 million loss on early
extinguishment of debt was recognized.
On September 6, 2022, the Company closed on a 15-year, non-recourse, $143.0 million mortgage
secured by Beacon Center and Seven Corners Center. The loan matures in 2037, bears interest at a fixed-rate of
5.05%, requires monthly principal and interest payments of $840,100 based on a 25-year amortization schedule and
requires a final payment of $79.9 million at maturity. Proceeds were used to repay the remaining balance of
approximately $85.3 million on the existing mortgages and reduce the outstanding balance of the Credit Facility.
This transaction was treated as a modification of the original debt agreement. A prepayment penalty of $5.9 million
was incurred, which was deferred and will be amortized as interest expense over the life of the loan and is included
as a reduction to notes payable, net in the Consolidated Balance Sheets.
47
47
Funds From Operations
In 2022, the Company reported Funds From Operations (“FFO”)1 available to common stockholders and
noncontrolling interests of $103.2 million, a 2.4% increase from 2021 FFO available to common stockholders and
noncontrolling interests of $100.7 million. FFO available to common stockholders and noncontrolling interests
increased primarily due to (a) higher base rent of $3.4 million, (b) lower interest expense, net and amortization of
deferred debt costs of $1.5 million, primarily due to higher capitalized interest and (c) lower credit losses on
operating lease receivables and corresponding reserves, collectively, of $0.7 million, partially offset by (d) higher
general and administrative costs of $2.1 million and (e) lower recovery income, net of expenses of $1.4 million. The
following table presents a reconciliation from net income to FFO available to common stockholders and
noncontrolling interests for the periods indicated:
(Dollars in thousands)
Net income
Subtract:
Gain on sale of property
Add:
Real estate depreciation and amortization
FFO
Subtract:
Year ended December 31,
2022
2021
2020
$ 65,392 $ 61,649 $ 50,316
—
—
(278)
48,969
50,272
51,126
114,361
111,921
101,164
Preferred stock dividends
(11,194)
(11,194)
(11,194)
FFO available to common stockholders and
noncontrolling interests
Weighted average shares and units:
Basic
Diluted (2)
Basic FFO per share available to common
stockholders and noncontrolling interests
Diluted FFO per share available to common
stockholders and noncontrolling interests.
$ 103,167 $ 100,727 $ 89,970
33,256
33,972
32,029
33,098
31,266
31,267
$
$
3.10 $
3.14 $
2.88
3.04 $
3.04 $
2.88
(1)
The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP
financial measure of performance of an equity REIT in order to recognize that income-producing real estate
historically has not depreciated on the basis determined under GAAP. FFO is defined by NAREIT as net income,
computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding impairment
charges on depreciable real estate assets and gains or losses from property dispositions. FFO does not represent
cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash
available to fund cash needs, which is disclosed in the Company’s Consolidated Statements of Cash Flows for
the applicable periods. There are no material legal or functional restrictions on the use of FFO. FFO should not
be considered as an alternative to net income, its most directly comparable GAAP measure, as an indicator of the
Company’s operating performance, or as an alternative to cash flows as a measure of liquidity. Management
considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the
assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is
contrary to what we believe occurs with our assets, and because industry analysts have accepted it as a
performance measure. FFO may not be comparable to similarly titled measures employed by other REITs.
(2)
Beginning March 5, 2021, fully diluted shares and units includes 1,416,071 limited partnership units held in
escrow related to the contribution of Twinbrook Quarter by 1592 Rockville Pike. Half of the units held in escrow
were released on October 18, 2021. The remaining units held in escrow are scheduled to be released on October
18, 2023.
48
48
Acquisitions and Redevelopments
Management anticipates that during the coming year, the Company may redevelop certain of the
Current Portfolio Properties and may develop additional freestanding outparcels or expansions within certain of the
Shopping Centers. Acquisition and development of properties are undertaken only after careful analysis and review,
and management’s determination that such properties are expected to provide long-term earnings and cash flow
growth. During the coming year, any developments, expansions or acquisitions are expected to be funded with bank
borrowings from the Company’s credit line, construction financing, proceeds from the operation of the Company’s
dividend reinvestment plan or other external capital resources available to the Company.
The Company has been selectively involved in acquisition, development, redevelopment and renovation
activities. It continues to evaluate the acquisition of land parcels for retail and mixed-use development and
acquisitions of operating properties for opportunities to enhance operating income and cash flow growth. The
Company also continues to analyze redevelopment, renovation and expansion opportunities within the portfolio.
Portfolio Leasing Status
The following chart sets forth certain information regarding commercial leases at our properties for the
periods indicated. This section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022
and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in
this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed
on February 24, 2022.
As of December 31,
2022
2021
Total Properties
Shopping
Centers
Mixed-
Use
Total Square Footage
Mixed-
Shopping
Use
Centers
Percentage Leased
Shopping
Centers Mixed-Use
50
50
7
7
7,877,330
1,136,885
7,874,130
1,136,937
94.7 %
93.4 %
82.5 %
82.3 %
The overall commercial portfolio leasing percentage, on a comparative same property basis, increased to
93.2% at December 31, 2022 from 92.0% at December 31, 2021. Included in the 93.2% of space leased as of
December 31, 2022, is approximately 241,000 square feet of space, representing 2.7% of total commercial square
footage, that has not been occupied by the tenant. Collectively, these leases are expected to produce approximately
$5.4 million of additional annualized base rent, an average of $22.41 per square foot, upon tenant occupancy and
following any contractual rent concessions.
The Mixed-Use commercial leasing percentage is composed of commercial leases at office mixed-use
properties and residential mixed-use properties. The leasing percentage at office mixed-use properties increased to
82.0% at December 31, 2022 from 81.6% at December 31, 2021. The retail leasing percentage at residential mixed-
use properties decreased to 91.2% at December 31, 2022 from 92.4% at December 31, 2021.
The following table shows selected data for leases executed in the indicated periods. The information is
based on executed leases without adjustment for the timing of occupancy, tenant defaults, or landlord concessions.
The base rent for an expiring lease is the annualized contractual base rent, on a cash basis, as of the expiration date
of the lease. The base rent for a new or renewed lease is the annualized contractual base rent, on a cash basis, as of
the expected rent commencement date. Because tenants that execute leases may not ultimately take possession of
their space or pay all of their contractual rent, the changes presented in the table provide information only about
trends in market rental rates. The actual changes in rental income received by the Company may be different.
49
49
Commercial Property Leasing Activity
Average Base Rent per Square Foot
Year ended December 31,
Square Feet
Number
of Leases
New/Renewed
Leases
Expiring
Leases
Shopping
Centers
Mixed-Use
Shopping
Centers
Mixed-Use
Shopping
Centers
Mixed-Use
Shopping
Centers
Mixed-Use
2022
2021
1,274,191
86,713
1,227,362
126,181
304
256
17 $
22.50 $
28.04 $
21.37 $
29
18.91
40.59
19.15
29.66
46.83
Additional information about commercial leasing activity during the three months ended December 31,
2022, is set forth below. The below information includes leases for space which had not been previously leased
during the period of the Company's ownership, either as a result of acquisition or development.
New
Leases
Commercial Property Leasing Activity
First Generation/
Development Leases
Renewed
Leases
Number of leases
Square feet
Per square foot average annualized:
Base rent
Tenant improvements
Leasing costs
Rent concessions
Effective rents
$
$
19
62,687
25.35 $
(4.32)
(0.90)
(0.31)
19.82 $
1
3,200
60.94 $
(12.50)
(1.92)
—
46.52 $
65
184,720
30.09
(0.16)
(0.01)
(0.02)
29.90
As of December 31, 2022, 1,026,830 square feet of Commercial space was subject to leases scheduled
to expire in 2023. Below is information about existing and estimated market base rents per square foot for that
space.
Expiring Commercial Property Leases:
Square feet
Average base rent per square foot
$
Estimated market base rent per square foot $
Total
1,026,830
18.53
18.59
The Residential portfolio was 97.2% leased at December 31, 2022, compared to 97.1% at December 31,
2021.
Residential Property Leasing Activity
Average Rent per Square Foot
Year ended
December 31,
2022
2021
Number of leases New/Renewed Leases Expiring Leases
3.22
3.28
1,005 $
694
3.44 $
3.22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to certain financial market risks, the most predominant being fluctuations in
interest rates and inflation. Interest rate fluctuations are monitored by management as an integral part of the
Company’s overall risk management program, which recognizes the unpredictability of financial markets and seeks
to reduce the potentially adverse effect on the Company’s results of operations.
50
50
The Company is exposed to interest rate fluctuations that will affect the amount of interest expense of
its variable-rate debt and the fair value of its fixed-rate debt. As of December 31, 2022, the Company had unhedged
variable rate indebtedness totaling $164.0 million. If the interest rates on the Company’s unhedged variable rate
debt instruments outstanding at December 31, 2022 had been one percentage point higher or lower, our annual
interest expense relating to these debt instruments would have increased or decreased by $1.6 million based on those
balances. As of December 31, 2022, the Company had fixed-rate indebtedness totaling $1.07 billion with a
weighted average interest rate of 4.8%. If interest rates on the Company’s fixed-rate debt instruments at December
31, 2022 had been one percentage point higher, the fair value of those debt instruments on that date would have
decreased by $56.9 million. If interest rates on the Company’s fixed-rate debt instruments at December 31, 2022 had
been one percentage point lower, the fair value of those debt instruments on that date would have increased by
$62.4 million.
Inflation may impact the Company's results of operations by (a) increasing costs unreimbursed by
tenants faster than rents increase and (b) adversely impacting consumer demand at our retail shopping centers,
which, in turn, may results in (i) lower percentage rent and/or (ii) the inability of tenants to pay their rent. Inflation
may also negatively impact the cost of development projects. While the Company has not been significantly
impacted by any of these items in the current year, no assurances can be provided that inflationary pressures will not
have a material adverse effect on the Company’s business in the future.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company and its consolidated subsidiaries are included in this report on
the pages indicated, and are incorporated herein by reference:
Page
F-1
F-3
F-4
F-5
F-6
F-9
F-10
(a) Reports of Independent Registered Public Accounting Firm – Deloitte & Touche LLP (PCAOB ID
Number 34).
(b) Consolidated Balance Sheets - December 31, 2022 and 2021.
(c) Consolidated Statements of Operations - Years ended December 31, 2022, 2021, and 2020.
(d) Consolidated Statements of Comprehensive Income – Years ended December 31, 2022, 2021, and
2020.
(e) Consolidated Statements of Equity - Years ended December 31, 2022, 2021, and 2020.
(f) Consolidated Statements of Cash Flows - Years ended December 31, 2022, 2021, and 2020.
(g) Notes to Consolidated Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Quarterly Assessment.
The Company carried out an assessment as of December 31, 2022 of the effectiveness of the design and
operation of its disclosure controls and procedures and its internal control over financial reporting. This assessment
was done under the supervision and with the participation of management, including the Company’s Chairman and
Chief Executive Officer, its Senior Vice President-Chief Financial Officer, and its Senior Vice President-Chief
Accounting Officer and Treasurer as appropriate. Rules adopted by the SEC require that the Company present the
conclusions of the Company’s Chairman and Chief Executive Officer, and its Senior Vice President-Chief Financial
Officer about the effectiveness of the Company’s disclosure controls and procedures and the conclusions of the
Company’s management about the effectiveness of its internal control over financial reporting as of the end of the
period covered by this Annual Report on Form 10-K.
51
51
CEO and CFO Certifications.
Included as Exhibits 31 to this Annual Report on Form 10-K are forms of “Certification” of the
Company’s Chairman and Chief Executive Officer, and its Senior Vice President-Chief Financial Officer. The forms
of Certification are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This section of the
Annual Report on Form 10-K that you are currently reading is the information concerning the assessment referred to
in the Section 302 certifications and this information should be read in conjunction with the Section 302
certifications for a more complete understanding of the topics presented.
Disclosure Controls and Procedures and Internal Control over Financial Reporting.
Management is responsible for establishing and maintaining adequate disclosure controls and
procedures and internal control over financial reporting. Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange
Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to provide
reasonable assurance that such information is accumulated and communicated to the Company’s management,
including the Company’s Chairman and Chief Executive Officer, its Senior Vice President-Chief Financial Officer,
and its Senior Vice President-Chief Accounting Officer and Treasurer, as appropriate to allow timely decisions
regarding required disclosure.
Internal control over financial reporting is a process designed by, or under the supervision of the
Company’s Chairman and Chief Executive Officer, its Senior Vice President-Chief Financial Officer, and its Senior
Vice President-Chief Accounting Officer and Treasurer, and effected by the Company’s Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with U. S. GAAP and includes those
policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the Company’s assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with U. S. GAAP, and that the Company’s receipts and
expenditures are being made only in accordance with authorizations of management or the
Company’s Board of Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a material adverse
effect on the Company’s financial statements.
Limitations on the Effectiveness of Controls.
Management, including the Company’s Chairman and Chief Executive Officer, its Senior Vice
President-Chief Financial Officer, and its Senior Vice President-Chief Accounting Officer and Treasurer, does not
expect that the Company’s disclosure controls and procedures or internal control over financial reporting will
prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control systems, no assessment of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management’s override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
52
52
Scope of the Assessments.
The assessment by the Company’s Chairman and Chief Executive Officer, its Senior Vice President-
Chief Financial Officer, and its Senior Vice President-Chief Accounting Officer and Treasurer of the Company’s
disclosure controls and procedures and the assessment by the Company’s management of the Company’s internal
control over financial reporting included a review of procedures and discussions with the Company’s Disclosure
Committee and others in the Company. In the course of the assessments, management sought to identify data errors,
control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements,
were being undertaken. Management used the criteria issued by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control - Integrated Framework (2013 Framework) to assess the effectiveness of
the Company’s internal control over financial reporting. The evaluation of the Company’s disclosure controls and
procedures and internal control over financial reporting is done on a quarterly basis so that the conclusions
concerning the effectiveness of disclosure controls can be reported in the Company’s Quarterly Reports on Form 10-
Q and Annual Report on Form 10-K.
The Company’s internal control over financial reporting is also evaluated on an ongoing basis by
management, other personnel in the Company’s accounting department and the Company’s internal audit function.
The effectiveness of the Company’s internal control over financial reporting is audited by the Company’s
independent registered public accounting firm. We consider the results of these various assessment activities as we
monitor the Company’s disclosure controls and procedures and internal control over financial reporting and when
deciding to make modifications as necessary. Management’s intent in this regard is that the disclosure controls and
procedures and the internal control over financial reporting will be maintained and updated (including improvements
and corrections) as conditions warrant.
Assessment of Effectiveness of Disclosure Controls and Procedures
Based upon the assessments, the Company’s Chairman and Chief Executive Officer, its Senior Vice
President-Chief Financial Officer, and its Senior Vice President-Chief Accounting Officer and Treasurer have
concluded that, as of December 31, 2022, the Company’s disclosure controls and procedures were effective.
Assessment of Effectiveness of Internal Control Over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control - Integrated Framework (2013 Framework) to assess the effectiveness of the
Company’s internal control over financial reporting. Based upon the assessments, the Company’s management has
concluded that, as of December 31, 2022, the Company’s internal control over financial reporting was effective.
The Company’s independent registered public accounting firm has issued a report on the effectiveness of the
Company’s internal control over financial reporting, which appears on page F-2 of this Annual Report on Form
10-K.
Changes in Internal Control Over Financial Reporting.
During the three months ended December 31, 2022, there was no change in the Company’s internal
control over financial reporting that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Item 9B. Other Information
None.
53
53
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information this Item requires is incorporated by reference to the information under the captions
“The Board of Directors,” “Corporate Governance – Ethical Conduct Policy and Senior Financial Officer Code of
Ethics,” “Delinquent Section 16(a) Reports,” “Corporate Governance – Nominating and Corporate Governance
Committee – Selection of Director Nominees,” and “Corporate Governance – Audit Committee” of the Company’s
Proxy Statement to be filed with the SEC for its annual stockholders’ meeting to be held on May 12, 2023 (the
“Proxy Statement”).
Item 11. Executive Compensation
The information this Item requires is incorporated by reference to the information under the captions
“Corporate Governance – Compensation of Directors,” “Report of the Compensation Committee,” and “Executive
Compensation” of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
The information this Item requires is incorporated by reference to the information under the captions
“Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management”
of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information this Item requires is incorporated by reference to the information under the captions
“Certain Relationships and Transactions” and “Corporate Governance – Board of Directors” of the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information this Item requires is incorporated by reference to the information contained in the
Proxy Statement under the caption “Audit Committee Report – 2022 and 2021 Independent Registered Public
Accounting Firm Fee Summary” of the Proxy Statement.
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54
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
1
The following documents are filed as part of this report:
Financial Statements
The following financial statements of the Company and their consolidated subsidiaries are incorporated by
reference in Part II, Item 8.
(a) Reports of Independent Registered Public Accounting Firm – Deloitte & Touche LLP — PCAOB ID Number 34
(b) Consolidated Balance Sheets - December 31, 2022 and 2021
(c) Consolidated Statements of Operations - Years ended December 31, 2022, 2021, and 2020.
(d) Consolidated Statements of Comprehensive Income – Years ended December 31, 2022, 2021, and 2020.
(e) Consolidated Statements of Equity - Years ended December 31, 2022, 2021, and 2020.
(f) Consolidated Statements of Cash Flows - Years ended December 31, 2022, 2021, and 2020.
(g) Notes to Consolidated Financial Statements
2.
Financial Statement Schedule and Supplementary Data
(a) Selected Quarterly Financial Data for the Company are incorporated by reference in Part II, Item 8
(b) Schedule of the Company:
Schedule III - Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
55
55
Exhibits
3.
(a) First Amended and Restated Articles of Incorporation of Saul Centers, Inc. filed with the Maryland
Department of Assessments and Taxation on August 23, 1994 and filed as Exhibit 3.(a) of the 1993 Annual
Report of the Company on Form 10-K are hereby incorporated by reference. Articles of Amendment to the
First Amended and Restated Articles of Incorporation of Saul Centers, Inc., filed with the Maryland
Department of Assessments and Taxation on May 28, 2004 and filed as Exhibit 3.(a) of the June 30, 2004
Quarterly Report of the Company is hereby incorporated by reference. Articles of Amendment to the First
Amended and Restated Articles of Incorporation of Saul Centers, Inc., filed with the Maryland Department of
Assessments and Taxation on May 26, 2006 and filed as Exhibit 3.(a) of the Company’s Current Report on
Form 8-K filed May 30, 2006 is hereby incorporated by reference. Articles of Amendment to the First
Amended and Restated Articles of Incorporation of Saul Centers, Inc., filed with the Maryland State
Department of Assessments and Taxation on May 14, 2013 and filed as Exhibit 3.(a) of the Company's
Current Report on Form 8-K filed May 14, 2013, is hereby incorporated by reference.
(b) Second Amended and Restated Bylaws of Saul Centers, Inc. as in effect at and after June 22, 2017 and filed
as Exhibit 3.(b) of the Company’s Current Report on Form 8-K filed June 28, 2017 is hereby incorporated by
reference.
(c) Articles Supplementary to First Amended and Restated Articles of Incorporation of the Company, dated
January 19, 2018, filed as Exhibit 3.3 of the Company’s Registration Statement on Form 8-A filed January
23, 2018 is hereby incorporated by reference.
(d) Articles Supplementary to First Amended and Restated Articles of Incorporation of the Company, dated
September 12, 2019, filed as Exhibit 3.2 of the Company’s Registration Statement on Form 8-A filed
September 17, 2019 is hereby incorporated by reference.
4.
(a) Deposit Agreement, dated January 23, 2018, among the Company, Continental Stock Transfer & Trust
Company, as Depositary, and the holders of depositary receipts, filed as Exhibit 4.2 of the Registrant’s
Registration Statement on Form 8-A filed January 23, 2018 is hereby incorporated by reference.
(b) Specimen certificate representing the 6.125% Series D Cumulative Redeemable Preferred Stock, par value
$0.01 per share, of the Company, filed as Exhibit 4.4 of the Company’s Registration Statement on Form 8-A
filed January 23, 2018 is hereby incorporated by reference.
(c) Deposit Agreement, dated September 17, 2019, among the Company, Continental Stock Transfer & Trust
Company, as Depositary, and the holders of depositary receipts, filed as Exhibit 4.1 of the Registrant’s
Registration Statement on Form 8-A filed September 17, 2019 is hereby incorporated by reference.
(d) Specimen certificate representing the 6.000% Series E Cumulative Redeemable Preferred Stock, par value
$0.01 per share, of the Company, filed as Exhibit 4.2 of the Company’s Registration Statement on Form 8-A
filed September 17, 2019 is hereby incorporated by reference.
(e) Description of Registrant's Securities, filed as Exhibit 4.(h) of the 2019 Annual Report of the Company on
Form 10-K is hereby incorporated by reference.
56
56
10.
(a) First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as
Exhibit No. 10.1 to Registration Statement No. 33-64562 is hereby incorporated by reference. The First
Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited
Partnership, the Second Amendment to the First Amended and Restated Agreement of Limited Partnership of
Saul Holdings Limited Partnership, and the Third Amendment to the First Amended and Restated Agreement
of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the 1995 Annual
Report of the Company on Form 10-K is hereby incorporated by reference. The Fourth Amendment to the
First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as
Exhibit 10.(a) of the March 31, 1997 Quarterly Report of the Company is hereby incorporated by reference.
The Fifth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership filed as Exhibit 4.(c) to Registration Statement No. 333-41436, is hereby incorporated by
reference. The Sixth Amendment to the First Amended and Restated Agreement of Limited Partnership of
Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the September 30, 2003 Quarterly Report of the
Company on Form 10-Q is hereby incorporated by reference. The Seventh Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a)
of the December 31, 2003 Annual Report of the Company on Form 10-K is hereby incorporated by reference.
The Eighth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership filed as Exhibit 10.(a) of the December 31, 2007 Annual Report of the
Company on Form 10-K is hereby incorporated by reference. The Ninth Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a)
of the March 31, 2008 Quarterly Report of the Company on Form 10-Q is hereby incorporated by reference.
The Tenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership filed as Exhibit 10.(a) of the March 31, 2008 Quarterly Report of the Company
on Form 10-Q is hereby incorporated by reference. The Eleventh Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of
the September 30, 2011 Quarterly Report of the Company on Form 10-Q is hereby incorporated by reference.
The Twelfth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership filed as Exhibit 10.1 of the Current Report of the Company on Form 8-K dated
February 12, 2013 is hereby incorporated by reference. The Thirteenth Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.1 of the
Current Report of the Company on Form 8-K dated November 12, 2014, is hereby incorporated by reference.
The Fourteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of the Saul
Holdings Limited Partnership, filed as Exhibit 10.1 of the Current Report of the Company on Form 8-K dated
January 23, 2018, is hereby incorporated by reference. The Fifteenth Amendment to the First Amended and
Restated Agreement of Limited Partnership of the Saul Holdings Limited Partnership, filed as Exhibit 10.1 of
the Current Report of the Company on Form 8-K dated May 14, 2018, is hereby incorporated by reference.
The Sixteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of the Saul
Holdings Limited Partnership, filed as Exhibit 10.1 of the Current Report of the Company on Form 8-K dated
September 17, 2019, is hereby incorporated by reference. The Seventeenth Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership, filed as Exhibit 10.(a)
of the June 30, 2021 Quarterly Report of the Company on Form 10-Q is hereby incorporated by reference.
The Eighteenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership, filed as Exhibit 10.(a) of the September 30, 2021 Quarterly Report of the
Company on Form 10-Q is hereby incorporated by reference.
(b) First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership and
Amendment No. 1 thereto filed as Exhibit 10.2 to Registration Statement No. 33-64562 are hereby
incorporated by reference. The Second Amendment to the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership, the Third Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership and the Fourth
Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership as filed as Exhibit 10.(b) of the 1997 Annual Report of the Company on Form 10-K are
hereby incorporated by reference.
57
57
(c) First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary II Limited Partnership and
Amendment No. 1 thereto filed as Exhibit 10.3 to Registration Statement No. 33-64562 are hereby
incorporated by reference. The Second Amendment to the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary II Limited Partnership filed as Exhibit 10.(c) of the June 30, 2001 Quarterly
Report of the Company is hereby incorporated by reference. The Third Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Subsidiary II Limited Partnership filed as exhibit 10.(c) of
the 2006 Annual Report of the Company on Form 10-K are hereby incorporated by reference. The Fourth
Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary II
Limited Partnership as filed as Exhibit 10.(c) of the 2009 Annual Report of the Company on Form 10-K is
hereby incorporated by reference. The Fifth Amendment to our First Amended and Restated Agreement of
Limited Partnership of Saul Subsidiary II Limited Partnership filed as Exhibit 10.(c) of the September 30,
2016 Quarterly Report of the Company is hereby incorporated by reference.
(d) Property Conveyance Agreement filed as Exhibit 10.4 to Registration Statement No. 33- 64562 is hereby
incorporated by reference.
(e) Management Functions Conveyance Agreement filed as Exhibit 10.5 to Registration Statement No. 33-64562
is hereby incorporated by reference.
(f) Registration Rights and Lock-Up Agreement filed as Exhibit 10.6 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
(g) Exclusivity and Right of First Refusal Agreement filed as Exhibit 10.7 to Registration Statement No.
33-64562 is hereby incorporated by reference.
(h) Agreement of Assumption dated as of August 26, 1993 executed by Saul Holdings Limited Partnership and
filed as Exhibit 10.(i) of the 1993 Annual Report of the Company on Form 10-K is hereby incorporated by
reference.
(i) Deferred Compensation Plan for Directors, dated as of April 23, 2004 and filed as Exhibit 10.(k) of the
June 30, 2004 Quarterly Report of the Company is hereby incorporated by reference.*
(j) Credit Agreement dated January 26, 2018, by and among: the Saul Holdings Limited Partnership, as
Borrower; Wells Fargo Bank, National Association, as Administrative Agent; Capital One, National
Association, as Syndication Agent; TD Bank, N.A. and U.S. Bank National Association,, as Documentation
Agents; and Wells Fargo, Capital One, TD Bank, U.S. Bank, Regions Bank and Associated Bank, National
Association, as Lenders and filed as Exhibit 10.1 of the Current Report of the Company on Form 8-K dated
January 26, 2018, is hereby incorporated by reference.
(k) Guaranty dated January 26, 2018, by and between: Saul Centers, Inc.; Saul Subsidiary I Limited Partnership;
Saul Subsidiary II Limited Partnership; Briggs Chaney Plaza, LLC; Kentlands Lot 1, LLC; 11503 Rockville
Pike LLC; Rockville Pike Holdings LLC; 1500 Rockville Pike LLC; Smallwood Village Center LLC;
Westview Village Center LLC; Avenel VI, Inc.; Metro Pike Center LLC; and Washington Square Center,
LLC, as Guarantors; in favor of Wells Fargo Bank, National Association, as Administrative Agent for the
lenders from time to time party to that certain Credit Agreement dated January 26, 2018 and filed as Exhibit
10.2 of the Current Report of the Company on Form 8 K dated January 26, 2018, is hereby incorporated by
reference.
(l) Credit Agreement dated August 31, 2021, by and among: the Partnership, as Borrower; Wells Fargo Bank,
National Association, as Administrative Agent; Capital One, National Association, as Syndication Agent; TD
Bank, N.A. and U.S. Bank National Association, as Documentation Agents; and Wells Fargo, Capital One,
TD Bank, U.S. Bank, Regions Bank, PNC Bank and Associated Bank, National Association, as Lenders and
filed as Exhibit 10.1 to the Current Report of the Company on Form 8-K dated September 1, 2021, is hereby
incorporated by reference.
(m) Guaranty dated August 31, 2021, by and between: Saul Centers, Inc.; Saul Subsidiary I Limited Partnership;
Saul Subsidiary II Limited Partnership; Briggs Chaney Plaza, LLC; Kentlands Lot 1, LLC; 11503 Rockville
Pike LLC; Rockville Pike Holdings LLC; 1500 Rockville Pike LLC; Smallwood Village Center LLC;
Westview Village Center LLC; Avenel VI, Inc.; Metro Pike Center LLC; and Washington Square Center
LLC, as Guarantors; in favor of Wells Fargo Bank, National Association, as Administrative Agent for the
lenders from time to time party to that certain Credit Agreement dated August 31, 2021 and filed as Exhibit
10.1 to the Current Report of the Company on Form 8-K dated September 1, 2021, is hereby incorporated by
reference.
(n) First Amendment to Credit Agreement dated October 3, 2022, by and among: the Partnership, as Borrower;
Wells Fargo Bank, National Association, as Administrative Agent; Capitol One, National Association, as
Syndication Agent; TD Bank, N.A., U.S. Bank National Association, Regions Bank, PNC Bank, National
Association, and Associated Bank, National Association, as Lenders and filed as Exhibit 10.1 of the
September 30, 2022 Quarterly Report of the Company, is hereby incorporated by reference.
58
58
(o) The Saul Centers, Inc. 2004 Stock Plan, as amended on April 25, 2008, May 10, 2013 and May 3, 2019, is
hereby incorporated by reference.
(p) Form of Director Stock Option Agreements, as filed as Exhibit 10.(j) of the September 30, 2004 Quarterly
Report of the Company, is hereby incorporated by reference.*
(q) Form of Officer Stock Option Grant Agreements, as filed as Exhibit 10.(k) of the September 30, 2004
Quarterly Report of the Company, is hereby incorporated by reference.*
(r) Amended and Restated Shared Services Agreement dated as of January 1, 2018, between B. F. Saul Company
and Saul Centers, Inc., filed as Exhibit 10.(s) of the 2017 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(s) Purchase Agreement, dated as of August 9, 2011, by and among the Company, Saul Holdings Limited
Partnership and B. F. Saul Real Estate Investment Trust and filed as Exhibit 10.(r) of the September 30, 2011
Quarterly Report of the Company is hereby incorporated by reference.
(t) First Amendment to Amended and Restated Shared Services Agreement effective as of January 1, 2019 ,
between B. F. Saul Company and Saul Centers, Inc. filed as Exhibit 10.(1) of the June 30, 2019 Quarterly
Report of the Company, is hereby incorporated by reference.
(u) Contribution Agreement, dated as of November 5, 2019, by and between Saul Holdings Limited Partnership
and 1592 Rockville Pike LLC filed as Exhibit 10(u) of the December 31, 2020 Annual Report of the
Company is hereby incorporated by reference.
(v) First Amendment to the Contribution Agreement, entered into on March 5, 2021, by and between Saul
Holdings Limited Partnership and 1592 Rockville Pike LLC, as filed as Exhibit 10.(a) of the March 31, 2021
Quarterly Report of the Company is hereby incorporated by reference.
21.
23.1
24.
31.
32.
101.
Subsidiaries of Saul Centers, Inc. is filed herewith.
Consent of Independent Registered Public Accounting Firm is filed herewith.
Power of Attorney (included on signature page).
Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer are filed
herewith.**
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer are filed herewith.**
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2022, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated
balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of changes in
stockholders’ equity and comprehensive income, (iv) consolidated statements of cash flows, and (v) the notes
to the consolidated financial statements.
104.1
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL
document.
* - Management Contract of Compensatory Plan or Agreement
** - In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the
Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference
into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by
reference.
Item 16. Form 10-K Summary
Not applicable.
59
59
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date:
March 2, 2023
SAUL CENTERS, INC.
(Registrant)
/s/ B. Francis Saul II
B. Francis Saul II
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons in the capacities indicated. Each person whose signature appears below hereby constitutes and appoints each
of B. Francis Saul II and Carlos L. Heard as his attorney-in-fact and agent, with full power of substitution and resubstitution for
him in any and all capacities, to sign any or all amendments to this Report and to file same, with exhibits thereto and other
documents in connection therewith, granting unto such attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all
that such attorney-in-fact and agent or his substitutes may do or cause to be done by virtue hereof.
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
/s/ Philip D. Caraci
Philip D. Caraci, Vice Chairman
/s/ D. Todd Pearson
D. Todd Pearson
President and Chief Operating Officer
/s/ Carlos L. Heard
Carlos L. Heard, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer)
/s/ Joel A. Friedman
Joel A. Friedman, Senior Vice President-
Chief Accounting Officer and Treasurer
(Principal Accounting Officer)
/s/ John E. Chapoton
John E. Chapoton, Director
/s/ G. Patrick Clancy, Jr.
G. Patrick Clancy, Jr., Director
/s/ J. Page Lansdale
J. Page Lansdale, Director
60
60
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
Date:
March 2, 2023
/s/ Willoughby B. Laycock
Willoughby B. Laycock, Director
/s/ H. Gregory Platts
H. Gregory Platts, Director
/s/ Earl A. Powell III
Earl A. Powell III, Director
/s/ Andrew M. Saul II
Andrew M. Saul II Director
/s/ Mark Sullivan III
Mark Sullivan III, Director
John R. Whitmore, Director
61
61
Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Saul Centers, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Saul Centers, Inc. and subsidiaries (the
“Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive
income, equity and cash flows for each of the three years in the period ended December 31, 2022, and the related
notes and the schedule listed in the Index at Item 15(a)2(b) (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 2, 2023, expressed an unqualified opinion
on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. We determined that there are no critical audit matters.
/s/ Deloitte & Touche LLP
McLean, Virginia
March 2, 2023
We have served as the Company's auditor since 2018.
F-1
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Saul Centers, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Saul Centers, Inc. and subsidiaries (the “Company”)
as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022,
based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the
Company and our report dated March 2, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Assessment of Effectiveness of Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
McLean, Virginia
March 2, 2023
F-2
F-2
December 31,
2022
2021
$
511,529 $
$
$
1,576,924
319,683
2,408,136
(688,475)
1,719,661
13,279
56,323
22,388
21,651
1,833,302 $
961,577 $
161,941
99,382
42,978
23,169
22,453
1,311,500
75,000
110,000
240
446,301
39,650
(273,559)
2,852
400,484
121,318
521,802
1,833,302 $
511,529
1,566,686
205,911
2,284,126
(650,113)
1,634,013
14,594
58,659
24,005
15,490
1,746,761
941,456
103,167
99,233
25,558
25,188
21,672
1,216,274
75,000
110,000
238
436,609
39,650
(256,448)
—
405,049
125,438
530,487
1,746,761
Saul Centers, Inc.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
Assets
Real estate investments
Land
Buildings and equipment
Construction in progress
Accumulated depreciation
Cash and cash equivalents
Accounts receivable and accrued income, net
Deferred leasing costs, net
Other assets
Total assets
Liabilities
Mortgage notes payable
Revolving credit facility payable
Term loan facility payable
Accounts payable, accrued expenses and other liabilities
Deferred income
Dividends and distributions payable
Total liabilities
Equity
Preferred stock, 1,000,000 shares authorized:
Series D Cumulative Redeemable, 30,000 shares issued and outstanding
Series E Cumulative Redeemable, 44,000 shares issued and outstanding
Common stock, $0.01 par value, 40,000,000 shares authorized, 24,016,009
and 23,840,471 shares issued and outstanding, respectively
Additional paid-in capital
Partnership units in escrow
Distributions in excess of accumulated earnings
Accumulated other comprehensive income
Total Saul Centers, Inc. equity
Noncontrolling interests
Total equity
Total liabilities and equity
$
The Notes to Financial Statements are an integral part of these statements.
F-3
F-3
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Revenue
Rental revenue
Other
Total revenue
Expenses
Property operating expenses
Real estate taxes
Interest expense, net and amortization of deferred debt costs
Depreciation and amortization of deferred leasing costs
General and administrative
Loss on early extinguishment of debt
Total expenses
Gain on sale of property
Net Income
Noncontrolling interests
For The Year Ended December 31,
2022
2021
2020
$
240,837 $
5,023
245,860
234,515 $
4,710
239,225
35,934
28,588
43,937
48,969
22,392
648
180,468
—
65,392
32,881
28,747
45,424
50,272
20,252
—
177,576
—
61,649
220,281
4,926
225,207
28,857
29,560
46,519
51,126
19,107
—
175,169
278
50,316
Income attributable to noncontrolling interests
Net income attributable to Saul Centers, Inc.
Preferred stock dividends
Net income available to common stockholders
Per share net income available to common stockholders
Basic and diluted
$
$
(15,198)
50,194
(13,260)
48,389
(11,194)
39,000 $
(11,194)
37,195 $
(9,934)
40,382
(11,194)
29,188
1.63 $
1.57 $
1.25
The Notes to Financial Statements are an integral part of these statements.
F-4
F-4
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Other comprehensive income
For The Year Ended December 31,
2022
2021
2020
$
65,392 $
61,649 $
50,316
Change in unrealized gain on cash flow hedge
Total comprehensive income
Comprehensive income attributable to noncontrolling
interests
Total comprehensive income attributable to Saul Centers,
Inc.
Preferred stock dividends
Total comprehensive income available to common
stockholders
3,962
69,354
—
61,649
—
50,316
(16,308)
(13,260)
(9,934)
53,046
(11,194)
48,389
(11,194)
40,382
(11,194)
$
41,852 $
37,195 $
29,188
The Notes to Financial Statements are an integral part of these statements.
F-5
F-5
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-
F
Saul Centers, Inc.
(Dollars in thousands)
Cash flows from operating activities:
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on early extinguishment of debt
Gain on sale of property
Depreciation and amortization of deferred leasing costs
Amortization of deferred debt costs
Non cash compensation costs of stock grants and options
Credit losses (recoveries) on operating lease receivables
(Increase) decrease in accounts receivable and accrued income
Additions to deferred leasing costs
(Increase) decrease in other assets
Increase (decrease) in accounts payable, accrued expenses and other liabilities
Increase (decrease) in deferred income
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of real estate investments (1) (2) (3)
Additions to real estate investments
Additions to development and redevelopment projects
Proceeds from sale of property
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from mortgage notes payable
Repayments on mortgage notes payable
Proceeds from term loan facility
Proceeds from revolving credit facility
Repayments on revolving credit facility
Proceeds from construction loans payable
Payments of debt extinguishment costs
Additions to deferred debt costs
Proceeds from the issuance of:
Common stock
Partnership units (1) (2) (3)
Distributions to:
Series D preferred stockholders
Series E preferred stockholders
Common stockholders
Noncontrolling interests
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Accrued capital expenditures included in accounts payable, accrued
expenses, and other liabilities
For The Year Ended December 31,
2021
2020
2022
$
65,392 $
61,649 $
50,316
648
—
48,969
1,985
1,521
(88)
2,424
(2,716)
4,511
524
(2,019)
121,151
—
(15,781)
(101,107)
—
(116,888)
199,750
(174,096)
—
155,000
(97,000)
—
(593)
(9,869)
8,173
1,322
—
—
50,272
1,710
1,562
812
5,446
(1,814)
(2,820)
(285)
1,895
118,427
(9,011)
(21,023)
(25,884)
—
(55,918)
—
(42,641)
25,000
46,000
(44,500)
10,917
—
(6,393)
14,425
2,398
(4,594)
(6,600)
(55,523)
(21,548)
(5,578)
(1,315)
14,594
13,279 $
(4,593)
(6,600)
(50,963)
(17,821)
(74,771)
(12,262)
26,856
14,594 $
—
(278)
51,126
1,570
1,438
5,212
(17,818)
(8,050)
5
861
(6,013)
78,369
—
(20,547)
(35,983)
376
(56,154)
52,100
(45,654)
—
90,000
(73,000)
35,883
—
(1,206)
8,264
1,677
(4,594)
(6,600)
(49,383)
(16,751)
(9,264)
12,951
13,905
26,856
40,725 $
44,575 $
44,990
19,006 $
5,906 $
4,327
$
$
$
(1)
(2)
(3)
The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $79,300 in connection with
the contribution of Twinbrook Quarter by the B. F. Saul Real Estate Investment Trust in exchange for limited partnership units,
half of which units remain in escrow.
The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $21,500 in connection with
the contribution of the Twinbrook Quarter leasehold interest in exchange for limited partnership units.
The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $4,320 in connection with
the issuance of additional limited partnership units to B. F. Saul Real Estate Investment Trust as additional consideration pursuant
to the terms of the 2016 contribution agreement, as amended, related to Ashbrook Marketplace.
The Notes to Financial Statements are an integral part of these statements.
F-9
F-9
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
1.
ORGANIZATION, BASIS OF PRESENTATION
Saul Centers, Inc. (“Saul Centers”) was incorporated under the Maryland General Corporation Law on
June 10, 1993. Saul Centers operates as a real estate investment trust (a “REIT”) under the Internal Revenue Code of
1986, as amended (the “Code”). The Company is required to annually distribute at least 90% of its REIT taxable
income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul
Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers,
together with its wholly owned subsidiaries and the limited partnerships of which Saul Centers or one of its
subsidiaries is the sole general partner, are referred to collectively as the “Company.” B. Francis Saul II serves as
Chairman of the Board of Directors and Chief Executive Officer of Saul Centers.
Saul Centers was formed to continue and expand the shopping center business previously owned and
conducted by the B. F. Saul Real Estate Investment Trust (the "Saul Trust"), the B. F. Saul Company and certain
other affiliated entities, each of which is controlled by B. Francis Saul II and his family members (collectively, the
“Saul Organization”). On August 26, 1993, members of the Saul Organization transferred to Saul Holdings Limited
Partnership, a newly formed Maryland limited partnership (the “Operating Partnership”), and two newly formed
subsidiary limited partnerships (the “Subsidiary Partnerships,” and collectively with the Operating Partnership, the
“Partnerships”), Shopping Centers and Mixed-Used Properties, and the management functions related to the
transferred properties. Since its formation, the Company has developed and purchased additional properties.
The Company, which conducts all of its activities through its subsidiaries, the Operating Partnership and
Subsidiary Partnerships, engages in the ownership, operation, management, leasing, acquisition, renovation,
expansion, development and financing of community and neighborhood shopping centers and mixed-used
properties, primarily in the Washington, DC/Baltimore metropolitan area.
Because the properties are located primarily in the Washington, DC/Baltimore metropolitan area, a
disproportionate economic downturn in the local economy would have a greater negative impact on our overall
financial performance than on the overall financial performance of a company with a portfolio that is more
geographically diverse. A majority of the Shopping Centers are anchored by several major tenants. As of
December 31, 2022, 33 of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day
necessities and services. One retail tenant, Giant Food (5.1%), a tenant at 11 Shopping Centers, individually
accounted for 2.5% or more of the Company’s total revenue for the year ended December 31, 2022.
As of December 31, 2022, the Current Portfolio Properties consisted of 50 Shopping Centers, seven
Mixed-Use Properties, and four (non-operating) development properties.
The accompanying consolidated financial statements of the Company include the accounts of Saul
Centers and its subsidiaries, including the Operating Partnership and Subsidiary Partnerships, which are majority
owned by Saul Centers. Substantially all assets and liabilities of the Company as of December 31, 2022 and
December 31, 2021, are comprised of the assets and liabilities of the Operating Partnership. The debt arrangements
which are subject to recourse are described in Note 5. All significant intercompany balances and transactions have
been eliminated in consolidation.
The Operating Partnership is a variable interest entity ("VIE") of the Company because the limited
partners do not have substantive kick-out or participating rights. The Company is the primary beneficiary of the
Operating Partnership because it has the power to direct the activities of the Operating Partnership and the rights to
absorb 72.0% of the net income of the Operating Partnership. Because the Operating Partnership is consolidated
into the financial statements of the Company, the identification of it as a VIE has no impact on the consolidated
financial statements of the Company.
F-10
F-10
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make
certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. The most significant estimates and assumptions relate to impairment of real
estate properties and collectability of operating lease receivables. Actual results could differ from those estimates.
Real Estate Investment Properties
Real estate investment properties are stated at historic cost less depreciation. Although the Company
intends to own its real estate investment properties over a long term, from time to time it will evaluate its market
position, market conditions, and other factors and may elect to sell properties that do not conform to the Company’s
investment profile. Management believes that the Company’s real estate assets have generally appreciated in value
since their acquisition or development and, accordingly, the aggregate current value exceeds their aggregate net
book value and also exceeds the value of the Company’s liabilities as reported in the financial statements. Because
the financial statements are prepared in conformity with GAAP, they do not report the current value of the
Company’s real estate investment properties.
If there is an event or change in circumstance that indicates a potential impairment in the value of a real
estate investment property, the Company prepares an analysis to determine whether the carrying value of the real
estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative
factors including recurring operating losses, significant decreases in occupancy, and significant adverse changes in
legal factors and business climate. If impairment indicators are present, the Company compares the projected cash
flows of the property over its remaining useful life, on an undiscounted basis, to the carrying value of that property.
The Company assesses its undiscounted projected cash flows based upon estimated capitalization rates, historic
operating results and market conditions that may affect the property. If the carrying value is greater than the
undiscounted projected cash flows, the Company would recognize an impairment loss equivalent to an amount
required to adjust the carrying amount to its then estimated fair value. The fair value of any property is sensitive to
the actual results of any of the aforementioned estimated factors, either individually or taken as a whole. Should the
actual results differ from management’s projections, the valuation could be negatively or positively affected. The
Company did not recognize an impairment loss on any of its real estate in 2022, 2021, or 2020.
Depreciation is calculated using the straight-line method and estimated useful lives of generally between
35 and 50 years for base buildings, or a shorter period if management determines that the building has a shorter
useful life, and up to 20 years for certain other improvements that extend the useful lives. Leasehold improvements
expenditures are capitalized when certain criteria are met, including when the Company supervises construction and
will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or
the useful life of the improvement, using the straight-line method. Depreciation expense, which is included in
Depreciation and amortization of deferred leasing costs in the Consolidated Statements of Operations, for the years
ended December 31, 2022, 2021, and 2020, was $44.6 million, $45.5 million, and $45.9 million, respectively.
Repairs and maintenance expense totaled $15.2 million, $13.5 million, and $11.1 million for 2022, 2021, and 2020,
respectively, and is included in property operating expenses in the accompanying consolidated financial statements.
As of December 31, 2022, we have not identified any impairment triggering events, including the
impact of COVID-19 and corresponding tenant requests for rent relief. Accordingly, under applicable GAAP
guidance, no impairment charges were recorded.
F-11
F-11
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Assets Held for Sale
The Company considers properties to be assets held for sale when all of the following criteria are met:
• management commits to a plan to sell a property;
•
•
•
•
•
it is unlikely that the disposal plan will be significantly modified or discontinued;
the property is available for immediate sale in its present condition;
actions required to complete the sale of the property have been initiated;
sale of the property is probable and the Company expects the completed sale will occur within one
year; and
the property is actively being marketed for sale at a price that is reasonable given its current
market value.
The Company must make a determination as to the point in time that it is probable that a sale will be
consummated, which generally occurs when an executed sales contract has no contingencies and the prospective
buyer has significant funds at risk to ensure performance. Upon designation as an asset held for sale, the Company
records the carrying value of each property at the lower of its carrying value or its estimated fair value, less
estimated costs to sell, and ceases depreciation. As of December 31, 2022 and 2021, the Company had no assets
designated as held for sale.
Revenue Recognition
We lease Shopping Centers and Mixed-Use Properties to lessees in exchange for monthly payments that
cover rent, and where applicable, reimbursement for property taxes, insurance, and certain property operating
expenses. Our leases were determined to be operating leases and generally range in term from one to 15 years.
Some of our leases have termination options and/or extension options. Termination options allow the
lessee to terminate the lease prior to the end of the lease term, provided certain conditions are met. Termination
options generally require advance notification from the lessee and payment of a termination fee. Termination fees
are recognized as revenue over the modified lease term. Extension options are subject to terms and conditions stated
in the lease.
Rental and interest income are accrued as earned. Recognition of rental income commences when
control of the space has been given to the tenant. When rental payments due under leases vary from a straight-line
basis because of free rent periods or stepped increases, income is recognized on a straight-line basis. Expense
recoveries represent a portion of property operating expenses billed to the tenants, including common area
maintenance, real estate taxes and other recoverable costs. Upon adoption of ASU 2016-02, we made a policy
election not to separate lease and nonlease components and have accounted for each lease component and the related
nonlease components together as a single component. Expense recoveries are recognized in the period in which the
expenses are incurred. Rental income based on a tenant’s revenue (“percentage rent”) is accrued when a tenant
reports sales that exceed a specified breakpoint, pursuant to the terms of their respective leases.
Due to the business disruptions and challenges severely affecting the global economy caused by the
novel strain of coronavirus (“COVID-19”) pandemic, some lessees have requested rent relief, including rent
deferrals and other lease concessions. The lease modification guidance in ASU 2016-02 does not contemplate the
rapid execution of concessions for multiple tenants in response to sudden liquidity constraints of lessees. In April
2020, the FASB staff issued a question and answer document that provided guidance allowing the Company to elect
to either apply the lease modification accounting framework or not, with such election applied consistently to leases
with similar characteristics and similar circumstances. The Company has elected to apply such relief, which, in the
case of rent deferrals, results in the accrual of rent due from tenants and defers the payment of that rent to a future
date, and will monitor the collectability of rent receivables.
Accounts Receivable, Accrued Income, and Allowance for Doubtful Accounts
Accounts receivable are primarily comprised of rental and reimbursement billings due from tenants, and
straight-line rent receivables representing the cumulative amount of adjustments necessary to present rental income
on a straight-line basis. Individual leases are assessed for collectability and, upon the determination that the
F-12
F-12
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
collection of rents is not probable, accrued rent and accounts receivable are charged off, and the charge off is
reflected as an adjustment to rental revenue. Revenue from leases where collection is not probable is recorded on a
cash basis until collectability is determined to be probable. We also assess whether operating lease receivables, at
the portfolio level, are appropriately valued based upon an analysis of balances outstanding, effects of tenant
bankruptcies, historical levels of bad debt and current economic trends. Additionally, because of the uncertainties
related to the impact of the COVID-19 pandemic, our assessment also takes into consideration the types of business
conducted by tenants and current discussions with the tenants, as well as recent rent collection experience.
Evaluating and estimating uncollectable lease payments and related receivables requires a significant amount of
judgment by management and is based on the best information available to management at the time of evaluation.
For the year-ended December 31, 2022, we increased rental revenue by $461,400 due to payments from tenants of
receivables that were previously reserved or charged off. Actual results could differ from these estimates.
At December 31, 2022 and December 31, 2021, accounts receivable was comprised of:
(In thousands)
Rents currently due
Deferred rents
Straight-line rent
Other receivables
Reserve for credit losses on operating lease receivables
Total
Deferred Leasing Costs
December 31, 2022
December 31, 2021
$
$
8,433 $
1,042
45,815
2,706
(1,673)
56,323 $
8,484
2,872
46,681
3,704
(3,082)
58,659
Deferred leasing costs primarily consist of initial direct costs incurred in connection with successful
property leasing and amounts attributed to in place leases associated with acquired properties. Such amounts are
capitalized and amortized, using the straight-line method, over the term of the lease or the remaining term of an
acquired lease. Initial direct costs primarily consist of leasing commissions, costs paid to external third-party
brokers, and internal lease commissions that are incremental to obtaining a lease and would not have been incurred
if the lease had not been obtained. Unamortized deferred costs are charged to expense if the applicable lease is
terminated prior to expiration of the initial lease term. Collectively, deferred leasing costs totaled $22.4 million and
$24.0 million, net of accumulated amortization of approximately $51.3 million and $48.7 million, as of
December 31, 2022 and 2021, respectively. Amortization expense, which is included in Depreciation and
amortization of deferred leasing costs in the Consolidated Statements of Operations, totaled approximately
$4.3 million, $4.7 million, and $5.2 million, for the years ended December 31, 2022, 2021, and 2020, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments. Short-term investments include money
market accounts and other investments which generally mature within three months, measured from the acquisition
date, and/or are readily convertible to cash. Substantially all of the Company’s cash balances at December 31, 2022
are held in accounts at various banks. From time to time the Company may maintain deposits with financial
institutions in amounts in excess of federally insured limits. The Company has not experienced any losses on such
deposits and believes it is not exposed to any significant credit risk on those deposits.
Deferred Income
Deferred income consists of payments received from tenants prior to the time they are earned and
recognized by the Company as revenue, including tenant prepayment of rent for future periods, real estate taxes
when the taxing jurisdiction has a fiscal year differing from the calendar year reimbursements specified in the lease
agreement and tenant construction work provided by the Company. In addition, deferred income includes
unamortized balances that represent the fair value of certain below market leases determined as of the date of
acquisition.
F-13
F-13
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Derivative Financial Instruments
The Company may, when appropriate, employ derivative instruments, such as interest-rate swaps, to
mitigate the risk of interest rate fluctuations. The Company does not enter into derivative or other financial
instruments for trading or speculative purposes. Derivative financial instruments are carried at fair value as either
assets or liabilities on the consolidated balance sheets. For those derivative instruments that qualify, the Company
may designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow
hedge. Derivative instruments that are designated as a hedge are evaluated to ensure they continue to qualify for
hedge accounting. The effective portion of any gain or loss on the hedge instruments is reported as a component of
accumulated other comprehensive income (loss) and recognized in earnings within the same line item associated
with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings.
Any ineffective portion of the change in fair value of a derivative instrument is immediately recognized in earnings.
For derivative instruments that do not meet the criteria for hedge accounting, or that qualify and are not designated,
changes in fair value are immediately recognized in earnings.
Income Taxes
The Company made an election to be treated, and intends to continue operating so as to qualify, as a
REIT under the Code, commencing with its taxable year ended December 31, 1993. A REIT generally will not be
subject to federal income taxation, provided that distributions to its stockholders equal or exceed its REIT taxable
income and complies with certain other requirements. Therefore, no provision has been made for federal income
taxes in the accompanying consolidated financial statements.
As of December 31, 2022, the Company had no material unrecognized tax benefits and there exist no
potentially significant unrecognized tax benefits which are reasonably expected to occur within the next twelve
months. The Company recognizes penalties and interest accrued related to unrecognized tax benefits, if any, as
general and administrative expense. No penalties and interest have been accrued in years 2022, 2021, and 2020.
The tax basis of the Company’s real estate investments was approximately $1.61 billion and $1.64 billion as of
December 31, 2022 and 2021, respectively. With few exceptions, the Company is no longer subject to U.S. federal,
state, and local tax examinations by tax authorities for years before 2019.
Legal Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business, which are generally covered by insurance. Upon determination that a loss is probable to occur and can be
reasonably estimated, the estimated amount of the loss is recorded in the financial statements.
Recently Issued Accounting Standards
Recently issued accounting standards or pronouncements have been excluded because they are either
not relevant to the Company or they are expected not to have a material impact on the Consolidated Financial
Statements of the Company.
Reclassifications
Certain reclassifications have been made to prior years to conform to the presentation used for the year
ended December 31, 2022.
F-14
F-14
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
3.
REAL ESTATE
Construction in Progress
Construction in progress includes land, preconstruction and development costs of active projects.
Preconstruction costs include legal, zoning and permitting costs and other project carrying costs incurred prior to the
commencement of construction. Development costs include direct construction costs and indirect costs incurred
subsequent to the start of construction such as architectural, engineering, construction management and carrying
costs consisting of interest, real estate taxes and insurance. The following table shows the components of
construction in progress.
(in thousands)
Twinbrook Quarter
Hampden House
Other
Total
December 31,
2022
2021
$
$
227,672 $
80,704
11,307
319,683 $
138,069
56,898
10,944
205,911
Acquisitions
Twinbrook Quarter
On November 5, 2019, the Company entered into the Twinbrook Contribution Agreement to acquire
from 1592 Rockville Pike, a wholly-owned subsidiary of the Saul Trust, approximately 6.8 acres of land and its
leasehold interest in approximately 1.3 acres of contiguous land, together in each case with the improvements
located thereon, located at the Twinbrook Metro Station in Rockville, Maryland in exchange for 1,416,071 limited
partnership units in the Operating Partnership. The Contributed Property is immediately adjacent to approximately
10.3 acres owned by the Company. Title to the Contributed Property and the units were placed in escrow until
certain conditions of the Twinbrook Contribution Agreement were satisfied.
The units issued to 1592 Rockville Pike will remain in escrow until the conditions of the Twinbrook
Contribution Agreement, as amended, are satisfied. Half of the units held in escrow were released on October 18,
2021. The remaining units held in escrow are scheduled to be released on October 18, 2023.
On March 5, 2021, the Company entered into an amendment to the Twinbrook Contribution Agreement
in which it and 1592 Rockville Pike agreed to release to the Company from escrow the deed and assignment of the
leasehold interest of the Contributed Property, as of that date. The Company also reimbursed 1592 Rockville Pike
for certain expenses pursuant to the Twinbrook Contribution Agreement totaling $7.4 million. Acquisition costs
totaled $1.2 million. The Company recorded a finance lease right-of-use asset of $19.4 million and corresponding
lease liability of $19.4 million related to the leasehold interest assumed in the transaction. The incremental
borrowing rate used to calculate the lease liability was 5.63%.
On June 29, 2021, the third-party landlord under the ground lease contributed to the Company the fee
simple interest in the land underlying the leasehold interest in exchange for 469,740 limited partnership units in the
Operating Partnership, representing an aggregate value of $21.5 million. Acquisition costs were paid in cash and
totaled $0.7 million. Accordingly, the finance lease right-of-use asset and finance lease liability were extinguished.
Amortization expense and interest expense related to the lease totaled $104,000 and $362,800, respectively, for the
twelve months ended December 31, 2021.
F-15
F-15
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Allocation of Purchase Price of Real Estate Acquired
The Company allocates the purchase price of real estate investment properties to various components,
such as land, buildings and intangibles related to in-place leases and customer relationships, based on their relative
fair values.
During 2021, the Company acquired properties that had an aggregate cost of $108.3 million, including
acquisition costs. The entire amount was allocated to land.
The gross carrying amount of lease intangible assets included in deferred leasing costs as of
December 31, 2022 and 2021 was $10.7 million and $11.0 million, respectively, and accumulated amortization was
$9.2 million and $9.1 million, respectively. Amortization expense totaled $0.4 million, $0.5 million and
$0.6 million, for the years ended December 31, 2022, 2021, and 2020, respectively. The gross carrying amount of
below market lease intangible liabilities included in deferred income as of December 31, 2022 and 2021 was
$23.3 million and $23.3 million, respectively, and accumulated amortization was $17.3 million and $16.0 million,
respectively. Accretion income totaled $1.3 million, $1.4 million, and $1.4 million, for the years ended
December 31, 2022, 2021, and 2020, respectively. The gross carrying amount of above market lease intangible
assets included in accounts receivable as of December 31, 2022 and 2021 was $0.6 million and $0.6 million,
respectively, and accumulated amortization was $194,800 and $161,800, respectively. Amortization expense totaled
$32,900, $32,900 and $43,600, for the years ended December 31, 2022, 2021 and 2020, respectively. The remaining
weighted-average amortization period as of December 31, 2022 is 4.6 years, 6.3 years, and 4.9 years for lease
acquisition costs, above market leases and below market leases, respectively.
As of December 31, 2022, scheduled amortization of intangible assets and deferred income related to in place
leases is as follows:
(In thousands)
2023
2024
2025
2026
2027
Thereafter
Total
Lease acquisition
costs
Above market
leases
Below market
leases
$
$
316 $
199
153
131
121
593
1,513 $
33 $
33
33
33
33
244
409 $
1,297
878
601
509
507
2,237
6,029
4.
NONCONTROLLING INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNERSHIP
UNITS IN THE OPERATING PARTNERSHIP
Saul Centers is the sole general partner of the Operating Partnership, owning a 72.0% common interest
as of December 31, 2022. Noncontrolling interest in the Operating Partnership is comprised of limited partnership
units owned by the Saul Organization. Noncontrolling interest reflected on the accompanying consolidated balance
sheets is increased for earnings allocated to limited partnership interests and distributions reinvested in additional
units, and is decreased for limited partner distributions. Noncontrolling interest reflected on the consolidated
statements of operations represents earnings allocated to limited partnership interests held by the Saul Organization.
The Saul Organization holds a 26.6% limited partnership interest in the Operating Partnership
represented by 8,827,873 limited partnership units, as of December 31, 2022. The units are convertible into shares of
Saul Centers’ common stock, at the option of the unit holder, on a one-for-one basis provided that, in accordance
with the Saul Centers, Inc. Articles of Incorporation, the rights may not be exercised at any time that the Saul
Organization beneficially owns, directly or indirectly, in the aggregate more than 39.9% of the value of the
outstanding common stock and preferred stock of Saul Centers (the “Equity Securities”). As of December 31, 2022,
approximately 411,000 units were eligible for conversion.
F-16
F-16
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
As of December 31, 2022, a third party investor holds a 1.4% limited partnership interest in the
Operating Partnership represented by 469,740 convertible limited partnership units. At the option of the unit holder,
these units are convertible into shares of Saul Centers’ common stock on a one-for-one basis; provided that, in lieu
of the delivery of Saul Centers' common stock, Saul Centers may, in its sole discretion, deliver cash in an amount
equal to the value of such Saul Centers' common stock.
The impact of the Saul Organization’s 26.6% limited partnership interest in the Operating Partnership is
reflected as Noncontrolling Interests in the accompanying consolidated financial statements. Weighted average fully
diluted partnership units and common stock outstanding for the years ended December 31, 2022, 2021, and 2020,
were 34.0 million, 33.1 million, and 31.3 million, respectively.
The Company previously issued 708,035 limited partnership units related to the contribution of
Twinbrook Quarter that are held in escrow and will be released on October 18, 2023. Until such time as the units are
released from escrow, they are not eligible to receive distributions from the Operating Partnership.
5.
NOTES PAYABLE, BANK CREDIT FACILITY, INTEREST EXPENSE AND AMORTIZATION
OF DEFERRED DEBT COSTS
At December 31, 2022, the principal amount of outstanding debt totaled $1.2 billion, of which
$1.07 billion was fixed rate debt and $164.0 million was variable rate debt. The principal amount of the Company’s
outstanding debt totaled $1.2 billion at December 31, 2021, of which $949.0 million was fixed rate debt and
$206.0 million was variable rate debt.
At December 31, 2022, the Company had a $525.0 million Credit Facility comprised of a $425.0 million
revolving credit facility and a $100.0 million term loan. The revolving credit facility matures on August 29, 2025,
which may be extended by the Company for one additional year, subject to satisfaction of certain conditions. The
term loan matures on February 26, 2027, and may not be extended. Through October 2, 2022, interest accrued at
LIBOR plus an applicable spread, which was determined by certain leverage tests. Effective October 3, 2022, in
conjunction with the execution of the First Amendment to the Credit Facility, interest accrues at SOFR plus 10 basis
points plus an applicable spread, which is determined by certain leverage tests. As of December 31, 2022, the
applicable spread for borrowings was 140 basis points related to the revolving credit facility and 135 basis points
related to the term loan. Letters of credit may be issued under the Credit Facility. On December 31, 2022, based on
the value of the Company’s unencumbered properties, approximately $212.1 million was available under the Credit
Facility, $264.0 million was outstanding and approximately $185,000 was committed for letters of credit.
On August 23, 2022, the Company entered into two floating-to-fixed interest rate swap agreements to
manage the interest rate risk associated with $100.0 million of its variable-rate debt. Each swap agreement became
effective October 3, 2022 and each has a $50.0 million notional amount. One agreement terminates on October 1,
2027 and effectively fixes SOFR at 2.96%. The other agreement terminates on October 1, 2030 and effectively fixes
SOFR at 2.91%. Because the interest-rate swaps effectively fix SOFR for $100.0 million of variable-rate debt,
unless otherwise indicated, $100.0 million of variable-rate debt will be treated as fixed-rate debt for disclosure
purposes beginning September 30, 2022. The Company has designated the agreements as cash flow hedges for
accounting purposes.
As of December 31, 2022, the fair value of the interest-rate swaps totaled approximately $4.0 million,
which is included in Other assets in the Consolidated Balance Sheets. The increase in value from inception of the
swaps is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.
On February 23, 2022, the Company closed on a $133.0 million construction-to-permanent loan, the
proceeds of which will be used to partially fund Hampden House. The loan matures in 2040, bears interest at a fixed
rate of 3.90%, and requires interest only payments, which will be funded by the loan, until conversion to permanent.
The conversion is expected in the first quarter of 2026, and thereafter, monthly principal and interest payments
based on a 25-year amortization schedule will be required.
On March 11, 2022, the Company repaid in full the remaining principal balance of $28.3 million of the
mortgage loan secured by Lansdowne Town Center, which was scheduled to mature in June 2022.
F-17
F-17
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
On June 7, 2022, the Company repaid in full the remaining principal balance of $8.6 million of the
mortgage loan secured by Orchard Park, which was scheduled to mature in September 2022.
On August 4, 2022, the Company closed on a 15-year, non-recourse, $25.3 million mortgage secured by
Village Center. The loan matures in 2037, bears interest at a fixed-rate of 4.14%, requires monthly principal and
interest payments of $135,200 based on a 25-year amortization schedule and requires a final payment of
$13.4 million at maturity. Proceeds were used to repay the remaining balance of approximately $11.2 million on the
existing mortgage and reduce the outstanding balance of the Credit Facility. A $0.4 million loss on early
extinguishment of debt was recognized.
On August 24, 2022, the Company closed on a 7-year, non-recourse, $31.5 million mortgage secured by
Great Falls Center. The loan matures in 2029, bears interest at a fixed-rate of 3.91%, requires monthly principal and
interest payments of $164,700 based on a 25-year amortization schedule and requires a final payment of
$25.7 million at maturity. Proceeds were used to repay the remaining balance of approximately $8.0 million on the
existing mortgage and reduce the outstanding balance of the Credit Facility. A $0.2 million loss on early
extinguishment of debt was recognized.
On September 6, 2022, the Company closed on a 15-year, non-recourse, $143.0 million mortgage
secured by Beacon Center and Seven Corners Center. The loan matures in 2037, bears interest at a fixed-rate of
5.05%, requires monthly principal and interest payments of $840,100 based on a 25-year amortization schedule and
requires a final payment of $79.9 million at maturity. Proceeds were used to repay the remaining balance of
approximately $85.3 million on the existing mortgages and reduce the outstanding balance of the Credit Facility.
This transaction was treated as a modification of the original debt agreement. A prepayment penalty of $5.9 million
was incurred, which was deferred and will be amortized as interest expense over the life of the loan and is included
as a reduction to notes payable, net in the Consolidated Balance Sheets.
Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the
payment obligations of the Operating Partnership under the Credit Facility. The Operating Partnership is the
guarantor of (a) a portion of the Broadlands mortgage (approximately $3.6 million of the $28.9 million outstanding
balance at December 31, 2022), (b) a portion of the Avenel Business Park mortgage (approximately $6.3 million of
the $22.9 million outstanding balance at December 31, 2022), (c) a portion of The Waycroft mortgage
(approximately $23.6 million of the $152.7 million outstanding balance at December 31, 2022), (d) the Ashbrook
Marketplace mortgage (totaling $20.8 million at December 31, 2022), and (e) the mortgage secured by Kentlands
Place, Kentlands Square I and Kentlands pad (totaling $28.2 million at December 31, 2022). All other notes payable
are non-recourse.
On January 5, 2021, the Company repaid in full the remaining principal balance of $6.1 million of the
mortgage loan secured by Jamestown Place, which was scheduled to mature in February 2021.
On June 11, 2021, the Company repaid in full the remaining principal balance of $5.0 million of the
mortgage loan secured by Hunt Club Corners, which was scheduled to mature in August 2021.
On November 19, 2021, the Company closed on a $145.0 million construction-to-permanent loan, the
proceeds of which will be used to partially fund Phase I of the Twinbrook Quarter development project. The loan
matures in 2041, bears interest at a fixed rate of 3.83%, requires interest only payments, which will be funded by the
loan, until conversion to permanent. The conversion is expected in the fourth quarter of 2026, and thereafter,
monthly principal and interest payments based on a 25-year amortization schedule will be required.
The carrying value of the properties collateralizing the mortgage notes payable totaled $1.0 billion and
$1.1 billion, as of December 31, 2022 and 2021, respectively. The Company’s Credit Facility requires the Company
and its subsidiaries to maintain certain financial covenants, which are summarized below. The Company was in
compliance as of December 31, 2022.
•
•
limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to
less than 60% (leverage ratio);
limit the amount of debt so that interest coverage will exceed 2.0 x on a trailing four-quarter basis
(interest expense coverage); and
F-18
F-18
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
•
limit the amount of debt so that interest, scheduled principal amortization and preferred dividend
coverage exceeds 1.4x on a trailing four-quarter basis (fixed charge coverage).
Mortgage notes payable totaling $2.0 million and $41.0 million, respectively, at each of December 31,
2022 and 2021, are guaranteed by members of the Saul Organization.
As of December 31, 2022, the scheduled maturities of all debt including scheduled principal
amortization for years ended December 31 are as follows:
(in thousands)
2023
2024
2025
2026
2027
Thereafter
Principal amount
Unamortized deferred debt costs
Net
Balloon
Payments
$
$
9,225
50,117
184,363 (a)
134,088
100,000 (b)
440,093
917,886
$
Scheduled
Principal
Amortization
$
32,926 $
33,566
31,423
28,062
23,454
171,366
320,797
$
Total
42,151
83,683
215,786
162,150
123,454
611,459
1,238,683
15,783
1,222,900
(a) Includes $164.0 million outstanding under the Credit Facility.
(b) Includes $100.0 million outstanding under the Credit Facility.
Deferred Debt Costs
Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction
financing and the Credit Facility. These fees and costs are being amortized on a straight-line basis over the terms of
the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaled
$15.8 million and $11.2 million, net of accumulated amortization of $7.9 million and $7.7 million at December 31,
2022 and 2021, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets.
The components of interest expense are set forth below.
(in thousands)
Interest incurred
Amortization of deferred debt costs
Capitalized interest
Interest expense
Less: Interest income
Interest expense, net and amortization of
deferred debt costs
Year ended December 31,
2021
2020
2022
$
53,219 $
1,985
(11,191)
44,013
76
50,552 $
1,710
(6,831)
45,431
7
51,705
1,570
(6,616)
46,659
140
$
43,937 $
45,424 $
46,519
Deferred debt costs capitalized during the years ended December 31, 2022, 2021 and 2020 totaled
$9.9 million, $6.4 million and $1.2 million, respectively.
F-19
F-19
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
6.
LEASE AGREEMENTS
Lease income includes primarily base rent arising from noncancelable leases. Base rent (including
straight-line rent) for the years ended December 31, 2022, 2021, and 2020, amounted to $201.2 million,
$197.9 million, and $188.6 million, respectively. Future contractual payments under noncancelable leases for years
ended December 31 (which exclude the effect of straight-line rents), are as follows:
(in thousands)
2023
2024
2025
2026
2027
Thereafter
$
$
168,994
150,313
126,360
101,571
82,878
318,265
948,381
The majority of the leases provide for rental increases based on fixed annual increases or increases in
the Consumer Price Index and expense recoveries based on increases in operating expenses. The expense recoveries
generally are payable in equal installments throughout the year based on estimates, with adjustments made in the
succeeding year. Expense recoveries for the years ended December 31, 2022, 2021, and 2020, amounted to
$36.0 million, $34.5 million, and $34.7 million, respectively. In addition, certain retail leases provide for percentage
rent based on sales in excess of the minimum specified in the tenant’s lease. Percentage rent amounted to
$1.6 million, $1.5 million, and $0.9 million, for the years ended December 31, 2022, 2021, and 2020, respectively.
7.
LONG-TERM LEASE OBLIGATIONS
At December 31, 2022 and 2021, no properties were situated upon land subject to noncancelable long-
term leases.
Flagship Center consists of two developed out parcels that are part of a larger adjacent community
shopping center formerly owned by the Saul Organization and sold to an affiliate of a tenant in 1991. The Company
has a 90-year ground leasehold interest which commenced in September 1991 with a minimum rent of one dollar per
year. Countryside shopping center was acquired in February 2004. Because of certain land use considerations,
approximately 3.4% of the underlying land is held under a 99-year ground lease. The lease requires the Company to
pay minimum rent of one dollar per year as well as its pro-rata share of the real estate taxes.
The Company’s corporate headquarters space is leased by a member of the Saul Organization. The
lease commenced in March 2002 and expires in February 2027. The Company and the Saul Organization entered
into a Shared Services Agreement whereby each party pays an allocation of total rental payments based on a
percentage proportionate to the number of employees employed by each party. The Company’s rent expense for the
years ended December 31, 2022, 2021, and 2020 was $824,300, $799,500, and $799,300, respectively. Expenses
arising from the lease are included in general and administrative expense (see Note 9 – Related Party Transactions).
On January 1, 2019, in conjunction with the adoption of ASU 2016-02, a right of use asset and
corresponding lease liability related to our headquarters lease were recorded in other assets and other liabilities,
respectively. The lease commenced in March 2002 and expires on February 28, 2027. On February 28, 2022, the
lease was extended for an additional period of 60 months. In conjunction with the lease extension, a right of use
asset and corresponding lease liability was recognized of $3.8 million and $3.8 million, respectively. The right of
use asset and corresponding lease liability totaled $3.2 million and $3.2 million, respectively, at December 31, 2022.
8.
EQUITY AND NONCONTROLLING INTERESTS
The Consolidated Statements of Operations for the years ended December 31, 2022, 2021, and 2020
reflect noncontrolling interests of $15.2 million, $13.3 million, and $9.9 million, respectively, representing income
attributable to limited partnership units not held by Saul Centers.
F-20
F-20
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
At December 31, 2022, the Company had outstanding 3.0 million depositary shares, each representing
1/100th of a share of 6.125% Series D Cumulative Redeemable Preferred Stock (the "Series D Stock"). The
depositary shares may be redeemed at the Company’s option, in whole or in part, on or after January 23, 2023, at the
$25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The
depositary shares pay an annual dividend of $1.53125 per share, equivalent to 6.125% of the $25.00 liquidation
preference. The Series D Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption
and is not convertible into any other securities of the Company except in connection with certain changes in control
or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting
rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in
certain other events.
At December 31, 2022, the Company had outstanding 4.4 million depositary shares, each representing
1/100th of a share of 6.000% Series E Cumulative Redeemable Preferred Stock (the “Series E Stock”). The
depositary shares may be redeemed at the Company’s option, in whole or in part, on or after September 17, 2024, at
the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The
depositary shares pay an annual dividend of $1.50 per share, equivalent to 6.000% of the $25.00 liquidation
preference. The Series E Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption
and is not convertible into any other securities of the Company except in connection with certain changes in control
or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting
rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in
certain other events.
Per Share Data
Per share data for net income (basic and diluted) is computed using weighted average shares of common
stock. Convertible limited partnership units and employee stock options are the Company’s potentially dilutive
securities. For all periods presented, the convertible limited partnership units are anti-dilutive. The treasury stock
method was used to measure the effect of the dilution.
(Shares in thousands)
Weighted average common shares outstanding - Basic
Effect of dilutive options
Weighted average common shares outstanding - Diluted
Average share price
Non-dilutive options
Years non-dilutive options were issued
December 31,
2021
2020
2022
23,964
8
23,972
23,655
7
23,662
$
46.21 $
1,438
2013 through
2022
43.53 $
1,360
2013 through
2021
23,356
1
23,357
33.84
1,439
2014 through
2020
9.
RELATED PARTY TRANSACTIONS
The Chairman and Chief Executive Officer, the President and Chief Operating Officer, the Executive
Vice President-Chief Legal and Administrative Officer and the Senior Vice President-Chief Accounting Officer and
Treasurer of the Company are also officers of various members of the Saul Organization and their management time
is shared with the Saul Organization. Their annual compensation is fixed by the Compensation Committee of the
Board of Directors, with the exception of the Senior Vice President-Chief Accounting Officer and Treasurer whose
share of annual compensation allocated to the Company is determined by the shared services agreement (described
below).
The Company participates in a multiemployer 401K plan with entities in the Saul Organization which
covers those full-time employees who meet the requirements as specified in the plan. Company contributions, which
are included in general and administrative expense or property operating expenses in the consolidated statements of
operations, at the discretionary amount of up to 6% of the employee’s cash compensation, subject to certain limits,
F-21
F-21
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
were $387,700, $404,300, and $302,000, for 2022, 2021, and 2020, respectively. All amounts deferred by
employees and contributed by the Company are fully vested.
The Company also participates in a multiemployer nonqualified deferred compensation plan with
entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in
the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer
2% of their compensation in excess of a specified amount and the Company matches those deferrals up to three
times the amount deferred by employees. The Company’s expense, included in general and administrative expense,
totaled $337,900, $238,400, and $241,300, for the years ended December 31, 2022, 2021, and 2020, respectively.
All amounts deferred by employees and the Company are fully vested. The cumulative unfunded liability under this
plan was $3.0 million and $3.2 million, at December 31, 2022 and 2021, respectively, and is included in accounts
payable, accrued expenses and other liabilities in the consolidated balance sheets.
The Company has entered into a shared services agreement (the “Agreement”) with the Saul
Organization that provides for the sharing of certain personnel and ancillary functions such as computer hardware,
software, and support services and certain direct and indirect administrative personnel. The method for determining
the cost of the shared services is provided for in the Agreement and is based upon head count, estimates of usage or
estimates of time incurred, as applicable. Senior management has determined that the final allocations of shared
costs are reasonable. The terms of the Agreement and the payments made thereunder are reviewed annually by the
Audit Committee of the Board of Directors, which consists entirely of independent directors. Net billings by the
Saul Organization for the Company’s share of these ancillary costs and expenses for the years ended December 31,
2022, 2021, and 2020, which included rental expense for the Company’s headquarters lease (see Note 7. Long Term
Lease Obligations), totaled $9.6 million, $8.0 million, and $7.4 million, respectively. The amounts are expensed
when incurred and are primarily reported as general and administrative expenses or capitalized to specific
development projects in these consolidated financial statements. As of December 31, 2022 and 2021, accounts
payable, accrued expenses and other liabilities included $1.2 million and $1.1 million, respectively, representing
billings due to the Saul Organization for the Company’s share of these ancillary costs and expenses.
On March 5, 2021, the Company acquired from 1592 Rockville Pike, approximately 6.8 acres of land
and its leasehold interest in approximately 1.3 acres of contiguous land, together in each case with the improvements
located thereon, located at the Twinbrook Metro Station in Rockville, Maryland. See Notes 3 and 4.
In August 2016, the Company entered into an agreement (the "Ashbrook Contribution Agreement") to
acquire from the Saul Trust approximately 13.7 acres of land located at the intersection of Ashburn Village
Boulevard and Russell Branch Parkway in Ashburn, Virginia. The transaction closed on May 9, 2018, and the
Company issued 176,680 limited partnership units to the Saul Trust. The Company constructed a shopping center,
Ashbrook Marketplace. On June 30, 2021, the Company issued 93,674 additional limited partnership units as
additional consideration to the Saul Trust in accordance with the Ashbrook Contribution Agreement, as amended.
The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary of the B. F. Saul Company and a
member of the Saul Organization, is a general insurance agency that receives commissions and counter-signature
fees in connection with the Company’s insurance program. Such commissions and fees amounted to approximately
$286,900, $397,900, and $427,700, for the years ended December 31, 2022, 2021, and 2020, respectively.
10.
STOCK OPTION PLAN
Stock Based Employee Compensation, Deferred Compensation and Stock Plan for Directors
In 2004, the Company established a stock incentive plan (the “Plan”), as amended. Under the Plan,
options were granted at an exercise price not less than the market value of the common stock on the date of grant
and expire ten years from the date of grant. Officer options vest ratably over four years following the grant and are
charged to expense using the straight-line method over the vesting period. Director options vest immediately and are
charged to expense as of the date of grant.
The Company uses the fair value method to value and account for employee stock options. The fair
value of options granted is determined at the time of each award using the Black-Scholes model, a widely used
F-22
F-22
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility
determined using the most recent trading history of the Company’s common stock (month-end closing prices)
corresponding to the average expected term of the options; (2) Average Expected Term of the options is based on
prior exercise history, scheduled vesting and the expiration date; (3) Expected Dividend Yield determined by
management after considering the Company’s current and historic dividend yield rates, the Company’s yield in
relation to other retail REITs and the Company’s market yield at the grant date; and (4) a Risk-free Interest Rate
based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term
of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period
and includes the amounts as compensation expense in general and administrative expenses.
Pursuant to the Plan, the Compensation Committee established a Deferred Compensation Plan for
Directors for the benefit of the Company’s directors and their beneficiaries, which replaced a previous Deferred
Compensation and Stock Plan for Directors. Annually, directors are given the ability to make an election to defer all
or part of their fees and have the option to have their fees paid in cash, in shares of common stock or in a
combination of cash and shares of common stock upon separation from the Board. If a director elects to their have
fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the closing market price of
the Company’s common stock on the first trading day of the following quarter to determine the number of shares to
be credited to the director. During the twelve months ended December 31, 2022, 8,322 shares were credited to
director's deferred fee accounts and 7,738 shares were issued. As of December 31, 2022, the director's deferred fee
accounts comprise 120,824 shares.
The Compensation Committee has also approved an annual award of shares of the Company’s common
stock as additional compensation to each director serving on the Board of Directors as of the record date for the
Annual Meeting of Stockholders. The shares are awarded as of each Annual Meeting of Stockholders, and their
issuance may not be deferred.
At the annual meeting of the Company’s stockholders in 2004, the stockholders approved the adoption
of the 2004 stock plan for the purpose of attracting and retaining executive officers, directors and other key
personnel. The 2004 stock plan was subsequently amended by the Company’s stockholders at the 2008 Annual
Meeting, further amended at the 2013 Annual Meeting, and further amended at the 2019 Annual Meeting (the
“Amended 2004 Plan”). The Amended 2004 Plan, which terminates in 2029, provides for grants of options to
purchase up to 3,400,000 shares of common stock. The Amended 2004 Plan authorizes the Compensation
Committee of the Board of Directors to grant options at an exercise price which may not be less than the market
value of the common stock on the date the option is granted.
Effective April 24, 2020, the Compensation Committee granted options to purchase 238,000 shares
(29,624 incentive stock options and 208,376 nonqualified stock options) to 20 Company officers and 11 Company
Directors (the “2020 Options”), which expire on April 23, 2030. The officers’ 2020 Options vest 25% per year over
four years and are subject to early expiration upon termination of employment. The directors’ 2020 Options were
immediately exercisable. The exercise price of $50.00 per share was detemined by the Compensation Committee.
The exercise price was greater than the closing market price of the Company's common stock on the date of award,
which was $28.02. Using the Black-Scholes model, the Company determined the total fair value of the 2020 Options
to be $0.2 million, of which $0.2 million and $23,100 were assigned to the officer options and director options,
respectively. Because the directors’ options vested immediately, the entire $23,100 was expensed as of the date of
grant. The expense for the officers’ options is being recognized as compensation expense monthly during the four
years the options vest.
Effective May 7, 2021, the Compensation Committee granted options to purchase 250,500 shares
(35,572 incentive stock options and 214,928 nonqualified stock options) to 21 Company officers and 11 Company
Directors (the “2021 Options”), which expire on May 6, 2031. The officers’ 2021 Options vest 25% per year over
four years and are subject to early expiration upon termination of employment. The directors’ 2021 Options were
immediately exercisable. The exercise price of $43.89 per share was the closing market price of the Company's
common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value
of the 2021 Options to be $1.4 million, of which $1.2 million and $173,800 were assigned to the officer options and
director options, respectively. Because the directors’ options vested immediately, the entire $173,800 was expensed
F-23
F-23
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly
during the four years the options vest.
Effective May 13, 2022, the Compensation Committee granted options to purchase 248,000 shares
(25,745 incentive stock options and 222,255 nonqualified stock options) to 19 Company officers and 11 Company
Directors (the “2022 Options”), which expire on May 12, 2032. The officers’ 2022 Options vest 25% per year over
four years and are subject to early expiration upon termination of employment. The directors’ 2022 Options were
immediately exercisable. The exercise price of $47.90 per share was the closing market price of the Company’s
common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of
the 2022 Options to be $1.8 million, of which $1.6 million and $229,350 were assigned to the officer options and
director options, respectively. Because the directors’ options vested immediately, the entire $229,350 was expensed
as of the date of grant. The expense for the officers’ options is being recognized as compensation expense monthly
during the four years the options vest.
The following table summarizes the assumptions used in the valuation of the 2020, 2021 and 2022
option grants. During the twelve months ended December 31, 2022, stock option expense totaling $1.3 million was
included in general and administrative expense in the Consolidated Statements of Operations. As of December 31,
2022, the estimated future expense related to unvested stock options was $2.1 million.
Directors
Officers
Grant date
Exercise price
Fair value per
option
Volatility
Expected life
(years)
Assumed yield
Risk-free rate
May 13, 2022
May 7, 2021
April 24, 2020
May 13, 2022 May 7, 2021 April 24, 2020
$
$
$
$
47.90
8.34
30.00 %
$
$
43.89
6.32
29.70 %
50.00
0.84
25.80 %
$
$
$
$
47.90
7.66
27.10 %
$
$
43.89
5.96
27.50 %
5.0
4.90%
2.89%
5.0
4.96%
0.77%
5.0
3.80%
0.36%
7.0
4.93%
2.95%
7.0
4.97%
1.24%
50.00
0.92
24.00 %
7.0
3.85%
0.51%
The table below summarizes the option activity for the years 2022, 2021, and 2020:
2022
2021
2020
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Outstanding at January 1
1,601,250 $
51.73
1,502,670 $
52.86
1,309,614 $
53.38
Granted
Exercised
Expired/Forfeited
248,000
(26,875)
(54,000)
47.90
44.44
52.60
250,500
(64,920)
(87,000)
43.89
45.07
53.60
238,000
(10,749)
(34,195)
Outstanding December 31
1,768,375
51.28
1,601,250
51.73
1,502,670
Exercisable at December 31 1,237,250
52.76
1,098,500
53.22
971,545
50.00
49.19
54.09
52.86
53.01
The intrinsic value of options exercised in 2022, 2021, and 2020, was $0.2 million, $0.4 million and
$0.1 million, respectively. There was no intrinsic value of options outstanding and exercisable at year end 2022.
The intrinsic value of options outstanding and exercisable at year end 2021 was $4.9 million and $2.3 million,
respectively. The date of exercise was the measurement date for shares exercised during the period. The intrinsic
value measures the difference between the options’ exercise price and the closing share price quoted by the New
F-24
F-24
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
York Stock Exchange as of the date of measurement. At December 30, 2022, the final trading day of calendar 2022,
the closing price of $40.68 per share was used for the calculation of aggregate intrinsic value of options outstanding
and exercisable at that date. The weighted average remaining contractual life of the Company’s exercisable and
outstanding options at December 31, 2022 are 4.7 and 5.8 years, respectively.
11.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses and floating rate debt are reasonable estimates of their fair value. The aggregate fair value of the notes
payable with fixed-rate payment terms was determined using Level 2 data in a discounted cash flow approach,
which is based upon management’s estimate of borrowing rates and loan terms currently available to the Company
for fixed rate financing, would be approximately $919.2 million and $933.0 million as of December 31, 2022 and
2021, respectively, compared to the principal balance of $1.07 billion and $949.0 million at December 31, 2022 and
2021, respectively. A change in any of the significant inputs may lead to a change in the Company’s fair value
measurement of its debt.
12.
DERIVATIVES AND HEDGING ACTIVITIES
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to
manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses
interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow
hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-
rate payments over the life of the agreements without exchange of the underlying notional amount
The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in
accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. During 2022, such derivatives were used to hedge the variable cash
flows associated with certain variable-rate debt.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified
to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve
months, the Company estimates that approximately $1.8 million will be reclassified from other comprehensive
income and reflected as a decrease to interest expense.
The Company carries its interest-rate swaps at fair value. The Company has determined the majority of
the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy with the exception of the impact
of counter-party risk, which was determined using Level 3 inputs and is not significant. Derivative instruments are
classified within Level 2 of the fair value hierarchy because their values are determined using third-party pricing
models that contain inputs that are derived from observable market data. Valuation models require a variety of
inputs, including contractual terms, market prices, yield curves, credit spreads, measure of volatility, and
correlations of such inputs.
The table below details the fair value and location of the interest rate swaps as of December 31, 2022
and 2021.
(In thousands)
Fair Values of Derivative Instruments
December 31,
Derivative
Instrument
2022
Balance Sheet
Location
Fair Value
2021
Balance Sheet
Location
Fair Value
Interest rate swaps
Other Assets
$
3,962
N/A
N/A
F-25
F-25
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
The table below details the location in the financial statements of the gain or loss recognized on interest
rate derivatives designated as cash flow hedges for the years ended December 31, 2022, 2021, and 2020.
(In thousands)
The Effect of Hedge Accounting on Other Comprehensive Income (OCI)
Amount of Gain (or Loss)
Recognized in OCI
Location of Gain (or Loss) Reclassified
from OCI into Income
For the Years Ended December 31,
Amount of Gain (or Loss)
Reclassified from OCI into
Income
Derivative
Instrument
Interest rate
swaps
2022
2021
2020
$ 4,139
$—
$—
2022
Interest expense, net and
amortization of deferred
debt costs
2021
2020
2022
2021
2020
N/A
N/A $ 177
N/A
N/A
13.
COMMITMENTS AND CONTINGENCIES
Neither the Company nor the Current Portfolio Properties are subject to any material litigation, nor, to
management’s knowledge, is any material litigation currently threatened against the Company, other than routine
litigation and administrative proceedings arising in the ordinary course of business. Management believes that these
items, individually or in the aggregate, will not have a material adverse impact on the Company or the Current
Portfolio Properties.
14.
DISTRIBUTIONS
In December 1995, the Company established a Dividend Reinvestment and Stock Purchase Plan (the
“Plan”), to allow its stockholders and holders of limited partnership interests an opportunity to buy additional shares
of common stock by reinvesting all or a portion of their dividends or distributions. The Plan provides for investing
in newly issued shares of common stock at a 3% discount from market price without payment of any brokerage
commissions, service charges or other expenses. All expenses of the Plan are paid by the Company. The Operating
Partnership also maintains a similar dividend reinvestment plan that mirrors the Plan, which allows holders of
limited partnership interests the opportunity to buy either additional limited partnership units or common stock
shares of the Company.
The Company paid common stock distributions of $2.32 per share in 2022, $2.16 per share in 2021, and
$2.12 per share in 2020, Series D preferred stock dividends of $1.53, $1.53 and $1.53, respectively, per depositary
share in 2022, 2021, and 2020, and Series E preferred stock dividends of $1.50, $1.50, and $1.50, respectively, per
depositary share in 2022, 2021, and 2020. Of the common stock dividends paid, $1.32 per share, $1.49 per share,
and $1.43 per share, represented ordinary dividend income in 2022, 2021, and 2020, respectively, and $1.00 per
share, $0.67 per share, and $0.69 per share represented return of capital to the shareholders in 2022, 2021, and 2020,
respectively. All of the preferred dividends paid represented ordinary dividend income.
F-26
F-26
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
The following summarizes distributions paid during the years ended December 31, 2022, 2021, and 2020, and
includes activity in the Plan as well as limited partnership units issued from the reinvestment of unit distributions:
Total Distributions to
Dividend Reinvestments
Preferred
Stockholders
Common
Stockholders
Limited
Partnership
Unitholders
Common
Stock Shares
Issued
Discounted
Share Price
Limited
Partnership
Units Issued
Average
Unit Price
(Dollars in thousands, except per
share amounts)
Distributions during 2022
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Total 2022
Distributions during 2021
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Total 2021
Distributions during 2020
$
2,798 $ 14,159 $ 5,486
5,486
14,156
2,799
5,292
13,625
2,798
5,284
13,583
2,799
$ 11,194 $ 55,523 $ 21,548
13,698 $ 39.70
50.80
10,577
51.61
57,819
47.66
61,863
143,957
$
2,798 $ 13,037 $ 4,702
4,694
12,999
2,799
4,218
12,488
2,798
4,207
12,439
2,799
$ 11,194 $ 50,963 $ 17,821
63,970 $ 45.46
44.44
65,171
41.87
68,206
29.50
96,268
293,615
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
Total 2020
$
2,798 $ 12,371 $ 4,195
4,188
12,373
2,799
4,188
12,364
2,798
4,180
12,275
2,799
$ 11,194 $ 49,383 $ 16,751
117,368 $ 24.08
28.98
14,525
32.22
12,627
48.59
83,978
228,498
— $ —
—
—
51.55
12,955
48.16
13,704
26,659
13,697 $ 45.95
44.92
13,841
42.33
13,978
19,493
29.83
61,009
23,370 $ 24.35
29.47
13,108
—
—
15,101
49.40
51,579
In December 2022, the Board of Directors of the Company authorized a distribution of $0.59 per
common share payable in January 2023 to holders of record on January 17, 2023. As a result, $13.6 million was
paid to common shareholders on January 31, 2023. Also, $5.5 million was paid to limited partnership unitholders on
January 31, 2023 ($0.59 per Operating Partnership unit). The Board of Directors authorized preferred stock
dividends of (a) $0.3750 per Series E depositary share and (b) $0.3828 per Series D depositary share to holders of
record on January 3, 2023. As a result, $2.8 million was paid to preferred shareholders on January 17, 2023. These
amounts are reflected as a reduction of stockholders’ equity in the case of common stock and preferred stock
dividends and noncontrolling interests deductions in the case of limited partner distributions and are included in
dividends and distributions payable in the accompanying consolidated financial statements.
15.
BUSINESS SEGMENTS
The Company has two reportable business segments: Shopping Centers and Mixed-Use Properties. The
accounting policies of the segments are the same as those described in the summary of significant accounting
policies (see Note 2). The Company evaluates performance based upon income and cash flows from real estate for
the combined properties in each segment. All of our properties within each segment generate similar types of
revenues and expenses related to tenant rent, reimbursements and operating expenses. Although services are
provided to a range of tenants, the types of services provided to them are similar within each segment. The
properties in each portfolio have similar economic characteristics and the nature of the products and services
provided to our tenants and the method to distribute such services are consistent throughout the portfolio. Certain
reclassifications have been made to prior year information to conform to the 2022 presentation.
F-27
F-27
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(In thousands)
As of or for the year ended December 31, 2022
Real estate rental operations:
Revenue
Expenses
Income from real estate
Interest expense, net and amortization of deferred debt
costs
General and administrative
Depreciation and amortization of deferred leasing costs
Loss on early extinguishment of debt
Net income (loss)
Capital investment
Total assets
As of or for the year ended December 31, 2021
Real estate rental operations:
Revenue
Expenses
Income from real estate
Interest expense, net and amortization of deferred debt
costs
General and administrative
Depreciation and amortization of deferred leasing costs
Net income (loss)
Capital investment
Total assets
As of or for the year ended December 31, 2020
Real estate rental operations:
Revenue
Expenses
Income from real estate
Interest expense, net and amortization of deferred debt
costs
General and administrative
Shopping
Centers
Mixed-Use
Properties
Corporate
and Other
Consolidated
Totals
172,055 $
(36,895)
135,160
73,805 $
(27,627)
46,178
—
—
—
—
(28,359)
(20,610)
—
106,801 $
8,412 $
928,071 $
—
25,568 $
108,476 $
885,500 $
— $
—
—
245,860
(64,522)
181,338
(43,937)
(22,392)
—
(648)
(66,977) $
— $
19,731 $
(43,937)
(22,392)
(48,969)
(648)
65,392
116,888
1,833,302
169,681 $
(35,784)
133,897
69,544 $
(25,844)
43,700
— $
—
—
239,225
(61,628)
177,597
—
—
—
—
(28,843)
105,054 $
12,673 $
946,993 $
(21,429)
22,271 $
43,245 $
777,709 $
(45,424)
(20,252)
—
(65,676) $
— $
22,059 $
(45,424)
(20,252)
(50,272)
61,649
55,918
1,746,761
$
$
$
$
$
$
$
$
$
161,854 $
63,353 $
— $
225,207
(35,198)
(23,219)
126,656
40,134
—
—
—
—
—
—
(46,519)
(19,107)
278
96,043 $
15,207 $
—
19,899 $
(65,626) $
40,947 $
— $
—
—
(58,417)
166,790
(46,519)
(19,107)
(51,126)
278
50,316
56,154
975,195 $
643,503 $
26,874 $
1,645,572
Depreciation and amortization of deferred leasing costs
(30,891)
(20,235)
Gain on sale of property
Net income (loss)
Capital investment
Total assets
$
$
$
F-28
F-28
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
16.
SUBSEQUENT EVENTS
The Company has reviewed operating activities for the period subsequent to December 31, 2022 and
prior to the date that financial statements are issued, March 2, 2023, and determined there are no subsequent events
that are required to be disclosed.
F-29
F-29
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I
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 2022
Schedule III
Depreciation and amortization related to the real estate investments reflected in the statements of operations is
calculated over the estimated useful lives of the assets as follows:
Base building
Building components
Tenant improvements
Generally 35 - 50 years or a shorter period if management determines that
the building has a shorter useful life.
Up to 20 years
The shorter of the term of the lease or the useful life
of the improvements
The aggregate remaining net basis of the real estate investments for federal income tax purposes was approximately
$1.61 billion at December 31, 2022. Depreciation and amortization are provided on the declining balance and
straight-line methods over the estimated useful lives of the assets.
The changes in total real estate investments and related accumulated depreciation for each of the years in the three
year period ended December 31, 2022 are summarized as follows:
(In thousands)
Total real estate investments:
Balance, beginning of year
Acquisitions
Improvements
Retirements
Balance, end of year
Total accumulated depreciation:
Balance, beginning of year
Depreciation expense
Retirements
Balance, end of year
2022
2021
2020
$
2,284,126 $
—
130,300
(6,290)
2,408,136 $
2,124,796 $
108,279
54,177
(3,126)
2,284,126 $
2,081,597
—
45,396
(2,197)
2,124,796
650,113 $
44,636
(6,274)
688,475 $
607,706 $
45,487
(3,080)
650,113 $
563,474
45,865
(1,633)
607,706
$
$
$
F-34
F-34
DIRECTORS
B. Francis Saul II
Chairman and Chief
Executive Officer
Philip D. Caraci
Vice Chairman
The Honorable
John E. Chapoton
Partner, Brown
Investment Advisory
George P. Clancy, Jr.
Executive Vice
President, Retired
Chevy Chase Bank
J. Page Lansdale
President and Chief Operating
Officer, Retired
Willoughby B. Laycock
Senior Vice President, Residential
Design and Market Research
Patricia Saul Lotuff
Vice Chair, B. F. Saul Real
Estate Investment Trust
H. Gregory Platts
Senior Vice President
and Treasurer, Retired
National Geographic Society
Earl A. Powell III
Director, Retired
National Gallery of Art
Andrew M. Saul II
Chief Executive Officer
Genovation Cars
Mark Sullivan III
Financial and Legal Consultant
John R. Whitmore
Financial Consultant
SAUL CENTERS CORPORATE DATA
EXECUTIVE OFFICERS
B. Francis Saul II
Chairman and Chief Executive Officer
D. Todd Pearson
President and Chief Operating Officer
Christine N. Kearns
Executive Vice President,
Chief Legal and Administrative Officer
Christopher H. Netter
Executive Vice President,
Retail Leasing
Carlos L. Heard
Senior Vice President,
Chief Financial Officer
Joel A. Friedman
Senior Vice President,
Chief Accounting Officer
and Treasurer
Bettina T. Guevara
Senior Vice President,
General Counsel and Secretary
John F. Collich
Senior Vice President,
Chief Acquisitions and
Development Officer
Judith K. Garland
Senior Vice President,
Office
Lori S. Godby
Senior Vice President,
Residential
Donald A. Hachey
Senior Vice President,
Construction
Amitha Prabhu
Senior Vice President,
Chief Audit Executive
Charles Sherren
Senior Vice President,
Property Management
COUNSEL
Pillsbury Winthrop
Shaw Pittman LLP
Washington, DC 20036
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
McLean, Virginia 22102
WEB SITE
www.saulcenters.com
EXCHANGE LISTING
New York Stock
Exchange (NYSE) Symbol:
Common Stock: BFS
Preferred Stock: BFS.PrD
Preferred Stock: BFS.PrE
TRANSFER AGENT
Continental Stock Transfer and Trust
Company
1 State Street 30th Floor
New York, NY 10004-1561
INVESTOR RELATIONS
A copy of the Saul Centers, Inc. Annual
Report to the Securities and Exchange
Commission on Form 10-K, which
includes as exhibits the Chief Executive
Officer and Chief Financial Officer
Certifications required by Section 302
of the Sarbanes-Oxley Act, may be
printed from the Company’s web site or
obtained at no cost to stockholders by
writing to the address below or calling
(301) 986-6016. In 2022, the Company
filed with the NYSE the Certification of
its Chief Executive Officer confirming
that he was not aware of any violation by
the Company of the NYSE’s corporate
governance listing standards.
HEADQUARTERS
7501 Wisconsin Ave.
Suite 1500E
Bethesda, MD 20814-6522
Phone: (301) 986-6200
SAUL CENTERS, INC. ANNUAL REPORT 2022 | WWW.SAULCENTERS.COM
ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders will be
held at 11:00 a.m., local time, on May 12,
2023, at the Hyatt Regency Bethesda, One
Bethesda Metro Center, Bethesda, Maryland
(at the Southwest Corner of the intersection
of Wisconsin Avenue and Old Georgetown
Road, adjacent to the Bethesda Station on the
Metro Red Line).
42
7501 Wisconsin Avenue, Suite 1500E
Bethesda, MD 20814-6522
Phone: (301) 986-6200
Website: www.saulcenters.com